1994 (10) TMI 165 - AT - Central Excise

Issues Involved:
1. Time-barred demands
2. Bona fide belief regarding waste and scrap
3. Definition and classification of waste and scrap under Central Excise Tariff Act, 1985
4. Usability of residue as waste and scrap

Detailed Analysis:

1. Time-barred demands:
The appellants contended that the demands were barred by time due to the department's prior knowledge of the generation of waste and scrap. The department had issued show cause notices and conducted audits in the past, which clearly indicated their awareness of the nature of the scrap. The Tribunal found that the department had sufficient knowledge of the transactions and the manner of scrap generation and removal. Consequently, the demands were confined to a six-month period under Section 11A of the Central Excises & Salt Act, 1944. The Tribunal agreed with the appellants that there was no suppression or misstatement of facts, making the extended period of limitation inapplicable.

2. Bona fide belief regarding waste and scrap:
The appellants argued that they held a bona fide belief that the materials cleared were waste and scrap, based on trade understanding, technical literature, and the mechanical properties of the materials post-processing. The Tribunal examined the evidence, including technical literature and expert opinions, and found that the appellants' belief was genuine. The Tribunal noted that the department had not provided any contrary evidence to refute the appellants' claim. Therefore, the Tribunal accepted the appellants' contention of bona fide belief and ruled that the demands for the alleged input material were barred by time.

3. Definition and classification of waste and scrap under Central Excise Tariff Act, 1985:
The Tribunal examined the definition of waste and scrap as per the Central Excise Tariff Act, 1985, both before and after the amendment on 1-3-1988. The definition prior to 1-3-1988 referred to waste and scrap fit only for the recovery of metal. The amended definition included metal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting up, wear, or other reasons. The Tribunal found that the materials in question were waste and scrap generated from the processing of M.S. Sheets and did not retain the characteristics of M.S. Sheets. The Tribunal held that the materials met the definition of waste and scrap under both the pre- and post-amendment definitions.

4. Usability of residue as waste and scrap:
The Tribunal considered whether the residue left after mechanical operations on steel sheets could be treated as waste and scrap. The appellants provided evidence, including test results and expert opinions, showing that the materials had lost their original properties and were considered waste and scrap in trade parlance. The department's evidence, including statements from purchasers, indicated that the materials were used for manufacturing components. However, the Tribunal found that the materials were not fit for use as M.S. Sheets and were correctly classified as waste and scrap. The Tribunal concluded that the materials were waste and scrap under Rule 57F(4) of the Central Excise Rules, 1944, and that the duty payable should be as applicable to waste and scrap.

Majority Order:
The Tribunal, by majority, held that:
1. The demands are confined to a six-month period.
2. The waste and scrap must fulfill the definition given in Section XV (Note 6) of the Central Excise Tariff Act, 1985.
3. If the so-called waste and scrap is usable as sheet, it cannot be termed as waste and scrap, and the duty payable should be as applicable to sheets.
4. The case is remanded to the adjudicating authority to determine the duty liability based on documentary evidence for each consignment cleared within the past six months from the dates of the show cause notices.

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