GUPTA, J. - (1.) THIS appeal has been filed by the Revenue against the judgment of the learned Tribunal dated 9. 8. 2005, allowing the appeal of the assessee, and setting aside the demand of Rs. 4,75,335/-, as demanded by the Revenue in respect of the scrap, so also the penalties.
(2.) NECESSARY facts are, that the assessee is engaged in manufacture of white cement. The officers of the Central Excise Range Jodhpur, while conducting surprise inspection on 30. 10. 1999 noticed, that the assessee had cleared various types of waste and scrap without payment of duty on the private invoices (other than those issued under Rule 52a) during the period October, 1995 to July 1999. Accordingly show cause notice was issued, demanding duty on scrap, calling upon the assessee to show cause, as to why the duty may not be recovered, and interest, and penalty etc. may not be imposed. The statement of the Vice President Shri P. K. Jain were recorded on 8. 4. 1999 under Section 14 (2) of the Central Excise Act, 1944, and he stated that various types of scrap viz. M. S. Scrap, Conveyer scrap, scrap of Wooden Boxes, Cartoons scrap, Bearing scrap, Cement bags scrap etc. had arisen in their factory, and that said scrap had arisen from packaging material of goods received for use in the factory, and from machine and parts, bearing, conveyer belts etc. , which became unusable in the plant, during the course of manufacture of cement, that welding machine scrap, Heat Casting scrap, Liner plate scrap, steel scrap, 5 Kg. Packing machine scrap, Blow Bar Scrap, Grinding segment, Grinding Media, Electrical scrap, Cable scrap, Aluminum etc. were generated out of items used in the manufacturing machinery, and of white cement which became unusable on account of wear and tear, and various types of scrap were sent to scrap yard from various parts of the plant, and related department used to maintain a return pass which was sent to stores. The statement of Shri H. R. Kapoor, DGM (Mechanical) of the Unit was also recorded, wherein he admitted that M. S. Scrap and iron scrap are generated in the workshop as well as in the plant during the process of repairing and maintenance, and for this purpose they were using welding electrodes, Mild Steel, M. S. Channel Beams, M. S. Angles and cutting tools. The learned Additional Commissioner found, that various types of waste and scrap are generated at various stages. Metal scrap is generated in the workshop as well as in the plant during the course of repairing and maintenance of plant and machinery. Waste and scrap of metal has been defined under section note 8 of section XV of the Central Excise Tariff Act. In the factory of the assessee, such metal scrap is generated while mechanical working of metal products, and therefore, fall under the category of excisable goods, and are liable to excise duty. Another type of metal and other scrap is generated from the used capital goods, on which modvat credit was taken, and as per the provisions of erstwhile Rule 57-S (2) (c) of Central Excise Rules, 1944 such scrap was required to be cleared on payment of duty. Interalia with these findings, the demand of Rs. 10,81,736/- was confirmed, and penalty in the equal amount was imposed, interest was also levied, and the penalty of Rs. One Lakh was imposed under Section 173q (1) (a) of Central Excise Rules, 1944, and another penalty of Rs. One Lakh was imposed on the Vice President under Rule 209a of the Central Excise Rules, 1944. Aggrieved of this order the assessee filed appeal, and cited various case laws. Learned Commissioner (Appeals) found, that in the instant case the waste and scrap cleared by the assessee broadly fall under three categories, as under:- (i) Waste & scrap generated by cutting of plates, sheets, etc. during the course of repair and maintenance of plant and machinery. Under this head the duty charged was Rs. 4,75,333/ -. (ii) Waste & scrap generated by dismantling of capital goods/machinery. Under this head the duty charged was Rs. 5,52,354/ -. (iii) Waste and scrap of containers/packing material of inputs. Under this head the duty charged was Rs. 54,049/ -. Then, the learned Commissioner proceeded to examine the leviability of excise duty on each of the category individually. In this process considering the waste and scrap of first category, it was found, that metal waste and scrap generated in the workshop was generated by cutting of metal plates, angles, channels, sheets etc. , for making of parts of their plant and machinery, during the course of repair and maintenance, and that these are cut pieces/trimmings of metal, arising during making of parts, which were being replaced in place of old and worn out parts, although these are not resulting directly from the process of manufacturing of their final product i. e. Cement. However, the process undertaken by the assessee is definitely covered by the expression "mechanical working of metal" as given in the definition of waste and scrap. In the opinion of learned Commissioner, thus these goods satisfied the definition as contained in Section Note 8 (a) of Section XV of the Central Excise Tariff. Learned Commissioner sought support from a judgment of Tribunal, in Budhewala Co-op Sugar Mills Ltd. vs. CCE, Chandigarh-I reported in 2002 (141) ELT-490. It was also found, that the fact that these waste and scrap have been generated by cutting of M. S. Sheets etc. in the workshop has not been refuted by the assessee. Thus, it was found that adjudicating authority correctly demanded duty on such waste and scrap. So far other two categories are concerned, learned Commissioner found them to be not liable to excise duty, and thus the demand was accordingly reduced, and the penalty imposed in terms of Section 11-AC was also upheld by being reduced to the extent of duty confirmed, being Rs. 4,75,335/ -. Then, the penalty imposed under Section 173q was set aside, and the penalty imposed on appellant no. 2 Vice President was reduced to Rs. 45,000/ -. Against this order no appeal was filed by the Revenue, rather the order was never challenged by the Revenue in any manner whatsoever, with respect to the portion of duty which was not found to be leviable on 2nd and 3rd category of scrap. Thus that part of the matter acquired finality. However, the assessee filed appeal, challenging the levy of duty on first category of scrap.
(3.) THE learned Tribunal found, that in the instant case the scrap cleared by the assessee during the period did not arise out of any manufacturing activity, but arose during wear/ tear of the machine and machinery, and that, no credit had been availed by the assessee in respect of those machines and machinery. Under these circumstances, no duty could be demanded or confirmed in respect of scrap. THE learned Tribunal for this purpose relied upon another judgment of the learned Tribunal in Commissioner of Central Excise vs. Birla Corporation reported in 2005 (181) ELT- 263. With these findings the appeals were allowed, and the entire demand was set aside. It is against this order that the Revenue has come up in present appeal, which was admitted on 13. 10. 2006, by framing following substantial question of law:-      " Whether the learned Tribunal is right in law in dropping the demand and penalty on clearance of waste and scrap arisen out of cutting of M. S. Sheet plates etc. in their work shop as well as in the plant for making them of required size and specification for their own use in the factory viz. for repair and maintenance of the machines/plant. ?" Arguing the appeal learned counsel for the Revenue submitted, that the learned Commissioner (Appeals) had clearly put the scrap generated, into three categories, and had found the scrap of 2nd and 3rd category to be not leviable to excise duty, and found the scrap of first category to be leviable to excise duty, and it was no-where the case of the assessee in appeal, that even the first category of scrap is not leviable to excise duty, or that the catagorisation made by the learned Commissioner is wrong. Not only this even the learned Tribunal has not found the exercise of catagorisation into three categories by the learned Commissioner (Appeals) to be incorrect, or unwarranted. In these circumstances, the findings recorded by the learned Tribunal shows, that the learned Tribunal has found the scrap to be arising during wear/tear of the machine and machinery, and not to be arising out of manufacturing activity, and has relied upon its judgment in Birla Corporation's case, while a look at the judgment in Birla Corporation's case would show, that in that case the goods related to second category of scrap, in the categories formulated by the learned Commissioner (Appeals), and was not a case with respect to first category of scrap. Thus, the finding as recorded is perverse, and is required to be set aside. It was also contended, that according to Section Note 8 (a), 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 is described as waste and scrap. According to the learned counsel, in the present case, the metal waste, and scrap has arisen from manufacture, and in any case mechanical working of metal, and metal goods, and the scrap so generated is definitely not usable as such, because of breakage, cutting up etc. , and therefore, it fall under Section XV 8 (a) is clearly excisable, and the order of the learned Tribunal is required to be set aside. ;