CCE Vs. MADURANTAKAM CO-OP. SUGAR MILLS LTD.

JUDGEMENT

(1.) M /s. Madurantakam Co -op. Sugar Mills Ltd. (M/s. MCSM for short), appellants in Appeal No. E/1768/99 and respondents in the Department's Appeals viz. E/1753 & 1754/99, are manufacturers of sugar and molasses [Heading No. 17.01 of the CETA Schedule]. They had started their factory in the year 1960 and, over the years, certain parts of the machinery became unusable due to wear and tear, rust, repairs, etc. and such machinery parts were disposed of as scrap during the period 23.3.96 to 6.4.98. Show -cause notice dated 20.10.1998 issued by the department alleged that the above goods removed by M/s. MCSM without payment of duty were 'waste and scrap' falling under SH 7204.90 and hence dutiable. It accordingly demanded duty to the extent of Rs. 1,56,892.50 by invoking the proviso to Section 11A(1) of the Central Excise Act on the ground of suppression of facts and also proposed to impose penalty on the noticee under Section 11AC of the Act. M/s. MCSM replied by submitting that the above goods had been discarded as worn -out and unusable and that no manufacturing activity was involved and therefore any duty was not leviable on the items. It was also contended that they were under the bonafide belief that waste and scrap were not excisable and therefore they could not be alleged to have suppressed any fact with intent to evade payment of duty. The proposal for penalty was also contested on the ground that any mens rea was not involved in the removal of the goods. In adjudication of the dispute, the jurisdictional Deputy Commissioner confirmed the demand of duty against M/s. MCSM and imposed on them penalties of Rs. 1,46,011/ - and Rs. 16,000/ - under Section 11AC of the Act and Rule 173Q of the Central Excise Rules, 1944 respectively. In the appeal preferred by the party against the above decision of the original authority, learned Commissioner (Appeals) sustained the demand of duty to the extent of Rs. 1,37,501/ - only and set aside the rest of the demand of duty raised by the lower authority. The appellate Commissioner set aside the Section 11AC penalty and reduced the Rule 173Q penalty to Rs. 1,000/ -. Appeal No. 1753/99 before us is by the department aggrieved by the dropping of a part of the demand of duty raised by the original authority as also by the dropping of Section 11AC penalty and reduction of Rule 173Q penalty. Appeal No. 1768/99 is by the party challenging the demand of duty as well as penalty sustained by the appellate Commissioner.

(2.) THE Deputy Commissioner had, in his order, dropped the proposal for imposing Section 11AC penalty for the period prior to 28.9.96, against which the department preferred appeal to the Commissioner (Appeals) and the appellate authority rejected the said appeal. The present Appeal No. 1754/99 is against the decision of the appellate authority with regard to the proposal for imposing penalty on the party under Section 11AC for the period prior to 28.9.96. Heard both sides. Learned Counsel for M/s. MCSM relied on the Tribunal's decision in K.M. Sugar Mills Ltd. v. CCE, Allahabad : 2004 (164) ELT 40 (Tri. Del.), wherein it had been held that the burden was on the Revenue to prove that any waste and scrap had arisen out of capital goods in respect of which Modvat credit had been availed. Learned Counsel also referred to Note 8(a) under Section XV of the Schedule to the Central Excise Tariff Act, which reads:

(3.) LEARNED SDR also relied on the definition of "waste and scrap" given under Section Note 8(a) in her endeavour to establish that the machinery parts removed by the party from their factory during the period of dispute without payment of duty were dutiable. In this connection, she harped on the expression "wear and other reasons" used in the above definition, and submitted that some of the above machinery parts, though not generated from the manufacture or mechanical working of metals, were definitely not usable as such because of "wear and other reasons", thereby falling within the scope of the above definition of 'waste and scrap'. Further, it was submitted that some other items removed from the factory as above had been generated from the manufacture of certain machinery components, bolts &, nuts, etc. in the factory. Contextually, it was pointed out that M/s. MCSM used to manufacture some of the machinery parts within their factory. The waste and scrap which arose out of this activity fell within the above definition under Section Note 8(a). Learned SDR also submitted that it was not correct on the part of the Commissioner (Appeals) to set aside Section 11AC penalty while sustaining the demand of duty [albeit to a lesser extent than what was confirmed by the lower authority] under the proviso to Section 11A(1) of the Central Excise Act. However, she did not seem to be pressing for Section 11AC penalty for any period prior to 28.9.96.