ORDER
P.G. Chacko, Member (J)
1. The appellants were engaged in the manufacture of exerciser-cycle (which was dutiable) and bicycles and parts thereof (which were exempt from payment of duty). During the process of manufacture, waste and scrap of iron/steel classifiable under sub-heading 7204.30 of the Central Excise Tariff Schedule got generated. Such waste and scrap of iron and steel were exempt from payment of Central Excise duty under Notification No. 23/95-C.E., dated 16-3-95 and the appellants had filed classification list under Rule 173B accordingly. Notification No. 23/95-CE. ibid was rescinded under Notification No. 90/95-CE., dated 18-5-95 and simultaneously Notification No. 89/95-CE. was issued, which reads as under : –
“In exercise of the powers conferred by Sub-section (1) of Section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts waste, parings and scrap arising in the course of manufacture of exempted goods and falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) from the whole of the duty of excise leviable thereon which is specified in the said Schedule :
Provided that nothing contained in this notification shall apply to waste, parings and scrap cleared from a factory in which any other excisable goods other than exempted goods are also manufactured.
Explanation. – For the purpose of this notification, the expression exempted goods’ means excisable goods which are chargeable to ‘Nil’ rate of duty or, are exempted from the whole of the duty of excise leviable thereon by any other notification (not being a notification where exemption from the whole of duty of excise is granted based upon the value or quantity of clearances made in a financial year) issued under Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 or Sub-section (1) of Section 5A of the said Act.”
As the appellants were manufacturing and clearing both dutiable and exempted goods from their factory during the material time, the waste and scrap attracted the proviso in Notification No. 89/95-CE. ibid and, accordingly, the waste and scrap were chargeable to duty of excise at the applicable tariff rate. Officers of Central Excise, who visited the appellant’s factory on 28-7-95, found that they had cleared 4,32,511 Kgs. of waste and scrap of iron and steel valued at Rs. 27,56,499.90 during the period 18-5-95 to 26-7-95 without payment of duty (Rs. 4,13,475/- calculated @ 15% ad valorem) and without accounting for the production and clearance of the goods in their statutory records. After completing the investigations, the department issued Show Cause Notice dated 11-3-99 demanding Central Excise duty of Rs. 4,13,475/- on the waste and scrap for the aforementioned period, proposing to levy interest @ 20% on the duty amount under Section 11AB of the Central Excise Act as also to impose penalties under Section 11AC of the Act and Rule 173Q of the Central Excise Rules, 1944. The Show Cause Notice invoked the extended period of limitation by alleging that the party had suppressed the production and clearance of the scrap from the department with intent to evade payment of duty. In their reply to the Show Cause Notice, they pleaded that they were not informed of the issue of Notification No. 89/95; that they had filed classification list on 16-3-95 claiming exemption for the waste and scrap of iron and steel under Notification No. 23/95 and were clearing the goods on the basis of the approved classification list; that they had no intent to evade payment of duty on the goods as the Modvat credit available to the inputs used in the scrap was much higher than the amount of duty allegedly short-paid. The adjudicating authority passed the following order :-
(1) Demand of Rs. 4,13,475/- is confirmed against the party under Rule 9(2) read with Section 11A of the Central Excise Act, 1944; (2) A penalty of Rs. 4,13,475/- is imposed on the party under Section 11AC of the Act ibid.; (3) Interest @ 20% per annum is ordered to be recovered under the provisions of Section 11AB of the Act ibid.; and (4) A penalty of Rs. 25,000/- is imposed on the party under Rule 173Q of the Central Excise Rules, 1944. The Commissioner (Appeals) upheld the above order of the original authority. Hence the present appeal.
2. Heard both sides. Ld. Counsel for the appellants submitted that the entire demand was barred by limitation as the appellants had followed the approved classification list and had not suppressed or concealed the production and clearance of the waste and scrap in question. As the appellants were entitled to avail the benefit of Modvat credit of the duty paid on the inputs used in the production of the waste and scrap, they could not have had any intent to evade payment of duty at the time of clearance of such waste and scrap. Ld. Counsel further submitted that, as Sections 11AB and 11AC of the Central Excise Act came into force only on 28-9-96, it was illegal on the part of the lower authorities to have ordered levy of interest on the duty under Section 11AB and imposed mandatory penalty on the appellants under Section 11AC. In support of his arguments on the limitation issue, Id. Counsel relied on the following case laws : –
(i) Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and Ors. [1979 (118) ITR 326 (S.C.)]
(ii) Jaiprakash Industries Ltd. v. C.C.E., Chandigarh [2002 (146) E.L.T. 481 (S.C.)].
(iii) Patwari Udyog & Krishna Steel Industries v. C.C.E., Patna [2003 (151) E.L.T. 615 (Tri.) = 2003 (85) ECC 372 (Tri.)] (iv) Commercial Steel Engg. Corporation v. C.C.E., Patna [2003 (85) ECC 376 (Tri.)] 3. Ld. J.D.R. reiterated the findings and observations contained in the orders of the lower authorities.
4. I have carefully examined the submissions. It is not in dispute that, by virtue of Notification No. 89/95-C.E., dated 18-5-95, the waste and scrap of iron and steel produced and cleared by the appellants during the period 18-5-95 to 26-7-95 were chargeable to duty of excise. The only questions to be considered are whether the extended period of limitation is invocable in this case and whether the interest on duty under Section 11AB and the mandatory penalty on the party under Section 11AC are sustainable.
5. It has been argued that the appellants had no intent to evade payment of duty as the Modvat credit on the inputs used in the production of the waste and scrap was more than enough to discharge duty liability on the scrap. This argument had been made by the party before the Commissioner (Appeals) also but the latter has not examined the same. It has also been argued that, as the appellants had cleared the waste and scrap without payment of duty in terms of the approved classification list, the extended period of limitation could not be invoked against them. Yet another argument is that the production and clearance of waste and scrap were known to the department and the appellants did not suppress or conceal anything from them. Apropos the appellant’s argument with reference to approved classification list, the authorities below have recorded a finding that Rule 173B was contravened by the appellants with intent to evade payment of duty, by not filing fresh classification list after the issuance of Notification No. 89/95-C.E. I note that this finding has not been challenged in this appeal. Contravention of Central Excise Rules with intent to evade payment of duty is a valid and sufficient ground for invocation of the extended period of limitation and, therefore, I hold that the demand of duty in this case is not hit by limitation. It would be so even if the Counsel’s arguments with reference to Modvat credit, approved classification list etc. are accepted. The case law cited by Id. Counsel is distinguishable.
6. The demand is for the period 18-5-95 to 26-7-95. Sections 11AB and 11AC of the Central Excise Act were not in force during that period. It has been consistently held by this Tribunal that, in such circumstance, the provisions could not be invoked. Consequently the penalty of Rs. 4,13,475/-imposed under Section 11AC is set aside and it is held that no interest is chargeable on the duty amount under Section 11AB.
7. It is an admitted fact that the appellants had cleared dutiable waste and scrap without payment of duty and without following the normal central excise formalities such as accountal of production and clearance in statutory records. Such non-accountal is a valid ground for imposition of penalty under Rule 173Q but, it appears, none of the authorities below has recorded the necessary finding for imposition of penalty under this Rule. The penalty of Rs. 25,000/-, unsupported by any finding, is therefore set aside.
8. The appeal is disposed of in the above terms.