Exemption for duty-paid plastic scrap defeated the duty demand and penalty where notification conditions were satisfied.

Waste bearing plastic scrap arising in the manufacture of needles was covered by Entry 24 of the Schedule to Notification 53/88 because the plastic input had already suffered excise duty or additional customs duty, and Modvat credit had been availed on that duty-paid input. The exemption condition was therefore satisfied, so the duty demand on the scrap could not be sustained; once the exemption applied, the penalty also had no foundation and was set aside.

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Issues: Whether waste bearing scrap of plastic arising in the manufacture of needles and cleared without payment of duty was entitled to exemption under Entry 24 of the Schedule to Notification 53/88, and whether duty demand and penalty could be sustained.

Analysis: Entry 24 of the Schedule to Notification 53/88 granted full exemption to waste bearing scrap of plastic classifiable under Heading 39.15 when such waste arose from goods on which excise duty or additional duty of customs had been paid. The record showed that the plastic from which the scrap arose had suffered duty and that Modvat credit had been availed in respect of that duty paid input. The condition attached to the exemption was therefore satisfied. Once the exemption applied, the demand of duty on the scrap could not stand, and the foundation for penalty also disappeared.

Conclusion: The demand of duty on the scrap was unsustainable and the penalty was not imposable.

Final Conclusion: The appeal succeeded and the duty demand and penalty were set aside to that extent.

Ratio Decidendi: Where the conditions attached to an exemption notification are satisfied, duty cannot be demanded on the exempted goods and penalty cannot survive.

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