Waste and scrap classification governs excise duty; demand and penalty fail absent suppression or intent to evade.

Excise duty on capital goods cleared as waste and scrap must be assessed only under the tariff applicable to waste and scrap, not under headings meant for new capital goods; a demand founded on incorrect classification was therefore unsustainable. Where disposal of scrap was open, reflected in accounts, and there was no suppression of facts or material showing intent to evade duty, the extended limitation period and penalty could not be invoked. The duty demand and penalty were set aside with consequential relief.

---

---

Issues: (i) Whether excise duty on capital goods cleared as waste and scrap could be demanded under tariff headings applicable to capital goods instead of the waste and scrap themselves; and (ii) whether the demand and penalty were sustainable in the absence of suppression or intent to evade duty.

Issue (i): Whether excise duty on capital goods cleared as waste and scrap could be demanded under tariff headings applicable to capital goods instead of the waste and scrap themselves.

Analysis: The clearance in question consisted of assorted scrap and used items arising from capital goods. Rule 57S of the Central Excise Rules required duty only on waste and scrap when capital goods were sold as such. Duty, therefore, could not be levied by applying tariff headings meant for new capital goods, because those headings did not cover waste and scrap. The demand was founded on an incorrect tariff classification and lacked legal support.

Conclusion: The duty demand on this basis was unsustainable.

Issue (ii): Whether the demand and penalty were sustainable in the absence of suppression or intent to evade duty.

Analysis: The disposal of scrap was open and reflected in the assessee's accounts. Scrap generation is an ordinary incident of manufacturing, and its disposal does not by itself indicate an intention to evade duty. In the absence of suppression of facts or any material showing deliberate evasion, the extended period and the penalty could not be sustained.

Conclusion: The demand and penalty were not sustainable.

Final Conclusion: The assessee succeeded on both classification and limitation, and the duty demand as well as the penalty were set aside with consequential relief.

Ratio Decidendi: Where capital goods are removed as waste and scrap, duty is chargeable only as applicable to the waste and scrap, and not under tariff headings meant for capital goods; in the absence of suppression or intent to evade, the demand and penalty cannot be sustained.

---