1995 (7) TMI 222 - AT - Central Excise

Summary

Issues Involved:
1. Classification of cut sheets as waste and scrap.
2. Applicability of Modvat credit rules.
3. Time-bar under Section 11A read with Rule 57-I of Central Excise Rules, 1944.
4. Imposition of penalty and fine.

Detailed Analysis:

1. Classification of Cut Sheets as Waste and Scrap:
The appellants, engaged in manufacturing motor vehicles and parts, used duty-paid mild steel (MS) sheets as inputs. After optimal utilization, they removed the remnants and classified them as waste and scrap under sub-heading No. 7204.90, paying duty at Rs. 365/- per MT. The revenue argued that the duty should be Rs. 715/- per MT, as the remnants were cut sheets, not waste and scrap. The Tribunal referred to the definition of waste and scrap, which stipulates that waste and scrap must be "definitely not useable as such." The Tribunal concluded that the cut sheets were useable and thus did not qualify as waste and scrap under the Tariff.

2. Applicability of Modvat Credit Rules:
The appellants took credit of the duty paid on MS sheets under Rule 57A of the Central Excise Rules, 1944. The credit was utilized for paying duty on their final products. Rule 57F(4) allows removal of waste on payment of duty as if it were manufactured in the factory. The Tribunal noted that the cut sheets were not waste but part of the inputs and should be classified and taxed accordingly. The Tribunal emphasized that the cut sheets retained their utility and thus did not meet the criteria for waste and scrap.

3. Time-bar under Section 11A read with Rule 57-I of Central Excise Rules, 1944:
The appellants contended that the demand was time-barred. The show cause notice dated 3-5-1991 covered the period from 1-4-1986 to 5-5-1988. The Tribunal distinguished between Rule 57-I(1), which deals with errors or omissions, and Rule 57-I(2), which deals with improper disposal of inputs. The Tribunal held that Rule 57-I(2) applied, and there was no time limit for issuing a notice under this rule. Therefore, the demand was not time-barred.

4. Imposition of Penalty and Fine:
The Collector of Central Excise, Pune imposed a penalty of Rs. 4 lakhs and a fine of Rs. 1 lakh in lieu of confiscation of land, building, plant, and machinery. The Tribunal, however, decided not to confirm the penalty and fine, finding no justification for such imposition based on the journey of the proceedings.

Separate Judgment by Member (J):
Member (J) disagreed with the majority on the time-bar issue, arguing that the demands should be confined to six months as there was no suppression or misrepresentation. He cited the Bajaj Auto Ltd. case, where the demands were limited to six months. Member (J) also suggested remanding the case to examine the extent of duty recoverable on the scrap.

Final Order:
The majority decision confirmed the demand of duty but set aside the penalty and fine. The order of the Collector was modified accordingly.