Scrap-based excise demand fails without clear proof of manufacturing origin; extended limitation also falls absent suppression evidence.

Central excise duty on alleged scrap generation failed because the revenue did not produce clear and clinching evidence that the scrap arose from mechanical working or manufacturing activity rather than construction materials. A general reference to annexures was insufficient to establish excisability, and the burden of proof was not discharged. The extended period of limitation and consequential penalties also could not be sustained because there was no adequate proof of fraud, collusion, wilful misstatement, suppression of facts, or clandestine removal. The demand and penalties were therefore set aside with consequential relief.

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Issues: (i) Whether the scrap in question was shown, on the evidence, to have arisen out of mechanical working or manufacturing activity so as to attract central excise duty. (ii) Whether the extended period of limitation and the penalties could be sustained in the absence of clinching proof of suppression or clandestine removal.

Issue (i): Whether the scrap in question was shown, on the evidence, to have arisen out of mechanical working or manufacturing activity so as to attract central excise duty.

Analysis: The liability depended on proof that the scrap originated from mechanical working of metal and not from construction materials. The record showed that the adjudicating authority had not given a detailed or satisfactory finding explaining how the listed items were linked to mechanical working. In a demand of this magnitude, the revenue was required to produce clear and clinching evidence establishing the source of the scrap. A mere reference to the annexures and a general conclusion that the items were scrap was not enough. The burden to prove excisability was not discharged.

Conclusion: The duty demand on the alleged scrap was not sustainable and this issue was decided in favour of the assessee.

Issue (ii): Whether the extended period of limitation and the penalties could be sustained in the absence of clinching proof of suppression or clandestine removal.

Analysis: The facts did not justify invocation of the longer limitation period. The presence of Central Excise officers in the premises made it difficult to accept that there had been clandestine removal over a prolonged period. Since there was no adequate proof of fraud, collusion, wilful misstatement, or suppression of facts, the foundation for the extended period and consequential penalties failed.

Conclusion: The extended period of limitation and the penalties were not sustainable and this issue was decided in favour of the assessee.

Final Conclusion: The order-in-original was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: In a central excise demand based on alleged scrap generation, the revenue must establish by clear and clinching evidence that the scrap arose from excisable manufacturing activity, and the extended period of limitation cannot be invoked without proof of suppression or clandestine removal.

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