Dutiability of broken bottle scrap under excise rules confirmed, but limitation barred one demand and penalty was set aside.

Waste and scrap arising from broken glass bottles and jars used in filling tomato ketchup and sauces were treated as dutiable under Rule 57F(18)(a) of the Central Excise Rules, 1944, because the deeming provision applies when such scrap arises from inputs taken under credit and is removed on payment of duty; the scrap was also classified under tariff heading 7001.10. The extended limitation period could not be invoked for the earlier demand because the record showed a bona fide belief that no duty was payable, so that demand was barred by limitation. For the later period, duty was upheld but penalty was set aside in the absence of suppression with intent to evade duty.

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Issues: (i) Whether waste and scrap arising from broken glass bottles and jars used in filling tomato ketchup and sauces were dutiable under Rule 57F(18)(a) of the Central Excise Rules, 1944. (ii) Whether the demand for the earlier period was barred by limitation. (iii) Whether penalty was sustainable for the later period.

Issue (i): Whether waste and scrap arising from broken glass bottles and jars used in filling tomato ketchup and sauces were dutiable under Rule 57F(18)(a) of the Central Excise Rules, 1944.

Analysis: The assessee had taken credit in respect of the bottles, and the waste and scrap arose from those inputs during processing. The deeming language of Rule 57F(18)(a) treats such waste as if it were manufactured in the factory when removed on payment of duty. Earlier decisions relied on by the assessee did not consider this provision.

Conclusion: The waste and scrap arising from broken bottles and jars were liable to duty and fell under tariff heading 7001.10.

Issue (ii): Whether the demand for the earlier period was barred by limitation.

Analysis: For the earlier appeal, the notice covered a long past period, but the assessee had proceeded under a bona fide understanding that no duty was payable on such waste and scrap. On the facts, the extended period could not be invoked.

Conclusion: The demand for the earlier period was barred by limitation and could not be sustained.

Issue (iii): Whether penalty was sustainable for the later period.

Analysis: For the later period, limitation did not arise, but the same factual basis showed absence of suppression with intent to evade duty. On that footing, penalty was not justified.

Conclusion: The duty demand for the later period was upheld, but the penalty was set aside.

Final Conclusion: The common legal position on dutiability was decided in favour of the Revenue, but the reliefs granted on limitation for one appeal and on penalty for the other resulted in only a partial allowance of the matters overall.

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