Tariff classification of metal cut pieces turned on actual character, not process of manufacture; penalty was reduced.

Goods described in the assessee's records as cut pieces, side slits, gauge variations and defective coils were held to be selected lengths and widths of CRCA sheets, not waste and scrap, because tariff classification depends on the goods' actual character and description, not merely on their emergence during mechanical working of metal. Heading 7211.41 therefore applied, while Heading 7204.90 was rejected. The penalty under Rule 173Q was moderated because the duty had already been deposited during adjudication, and the penalty was reduced to Rs. 50,000. Classification and duty demand were sustained, with only partial relief on penalty.

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Issues: (i) Whether the impugned goods were correctly classifiable as waste and scrap under Heading 7204.90 or as CRCA sheets of selected lengths and widths under Heading 7211.41; (ii) whether the penalty imposed under Rule 173Q warranted interference.

Issue (i): Whether the impugned goods were correctly classifiable as waste and scrap under Heading 7204.90 or as CRCA sheets of selected lengths and widths under Heading 7211.41.

Analysis: The goods were described in the assessee's own records as C.R. Lafa, cut pieces, side slits, gauge variations and defective coils, and the evidence showed that the cleared goods were selected lengths and widths rather than waste or scrap. The fact that the goods arose during mechanical working of metal did not make them scrap by itself, because products other than scrap can also result from such process. The cited Supreme Court decision was distinguished as having been rendered under a different definition of waste and scrap.

Conclusion: The goods were correctly classifiable under Heading 7211.41 and not under Heading 7204.90, in favour of Revenue.

Issue (ii): Whether the penalty imposed under Rule 173Q warranted interference.

Analysis: The duty had been deposited during adjudication, which justified moderation of the penalty.

Conclusion: The penalty was reduced to Rs. 50,000, partly in favour of the assessee.

Final Conclusion: The classification and duty demand were sustained, while the penalty was substantially reduced, resulting in a partial allowance of the appeal.

Ratio Decidendi: Goods generated during the manufacture of metal products are not automatically waste or scrap merely because they arise from mechanical working; their tariff classification depends on their actual character and description.

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