Duty on undisclosed scrap from capital goods upheld, extended limitation sustained, with penalty reduced.

Duty and interest were held payable on waste and scrap cleared without invoice where the scrap arose from capital goods on which credit had been taken, because the record and verification materials supported that conclusion and the clearances were not disclosed to the department. The longer limitation period was upheld on the basis of such nondisclosure, but the penalty was reduced because the goods were scrap arising from capital goods rather than manufactured final products. The appeal succeeded only to the limited extent of penalty reduction, while the substantive duty and interest demand remained intact.

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Issues: (i) Whether duty and interest were payable on waste and scrap cleared without invoice when such scrap arose from capital goods on which credit had been taken. (ii) Whether invocation of the extended period was justified and whether the penalty required modification.

Issue (i): Whether duty and interest were payable on waste and scrap cleared without invoice when such scrap arose from capital goods on which credit had been taken.

Analysis: The waste and scrap was found to have arisen from capital goods received after the introduction of credit on capital goods, and the record maintained under the relevant rules and registers supported that finding. The explanation that the scrap related only to pre-credit capital goods was not accepted. The clearances were not brought to the knowledge of the department, and the verification report also supported the conclusion that credit had been taken on the disputed items.

Conclusion: The demand of duty and the order for recovery of interest were upheld.

Issue (ii): Whether invocation of the extended period was justified and whether the penalty required modification.

Analysis: Since the clearance of scrap arising from capital goods on which credit had been taken was not disclosed to the department, the longer limitation period was held to be applicable. At the same time, the disputed goods were scrap arising from capital goods and not manufactured final products, so a reduced penalty was considered appropriate.

Conclusion: The extended period was sustained, and the penalty was reduced from the original amount to Rs. 1,00,000.

Final Conclusion: The appeal succeeded only to the limited extent of reduction of penalty, while the substantive duty and interest demand remained intact.

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