SSI exemption for waste and scrap cleared in manufacture cannot be denied merely because inputs came from a large-scale unit.

Waste and scrap cleared during manufacture by a small-scale unit remained eligible for the concessional benefit under SSI Notification No. 1/93-C.E. The demand for differential duty was based on the fact that the inputs had been supplied by a large-scale unit, but the Central Excise Rules contained no charging provision to levy duty at the supplier's rate on such scrap. On that basis, the differential duty demand and penalty were held not sustainable and were set aside.

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Issues: Whether differential duty and penalty could be sustained on scrap cleared by a job worker at the concessional rate applicable to a small-scale industry under the relevant exemption notification.

Analysis: The demand was based on the premise that scrap generated from inputs supplied by a large-scale unit had to suffer duty at the rate applicable to the supplier. It was found that the Central Excise Rules contained no provision supporting such levy. The waste and scrap cleared in the course of manufacture of the appellants' goods were covered by the concessional benefit available under SSI Notification No. 1/93-C.E.

Conclusion: The differential duty demand and the penalty were not sustainable and were set aside. The appeal was allowed.

Ratio Decidendi: In the absence of a charging provision in the Central Excise Rules, waste and scrap cleared during manufacture by a small-scale unit cannot be denied the benefit of the applicable SSI exemption notification merely because the inputs were supplied by a large-scale unit.

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