Waste lubricating oil is non-excisable after use; wrong Cenvat credit still attracts penalty and interest.

Used lubricating oil drained from machinery after use is not excisable merely because it is waste oil, and duty under the cited tariff heading was not sustainable. On the Cenvat issue, job work challans supported a substantial part of the inputs, and in the absence of positive evidence of diversion, penalty under the stricter evasion provision was not justified. However, the reduced credit demand, the penalty, and interest on wrongly availed credit were upheld, since prior payment before notice did not wipe out the interest liability.

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Issues: (i) Whether waste lubricating oil drained from machinery after use was excisable and liable to central excise duty under Heading 34.03; (ii) Whether the demand of Cenvat credit on inputs sent to job workers, the penalty, and the interest liability were sustainable.

Issue (i): Whether waste lubricating oil drained from machinery after use was excisable and liable to central excise duty under Heading 34.03.

Analysis: The product in question was used lubricant that became unfit after a period of use and was merely drained out as waste oil. The cited classification ruling on imported waste lubricating oil did not govern the question whether such used oil emerged as a manufactured product. The Tribunal noted prior decisions holding that waste lubricating oil drained after use is non-excisable and found that the goods did not answer the description of the tariff heading relied upon by the department.

Conclusion: The waste oil was held to be non-excisable and the demand of duty was not sustainable.

Issue (ii): Whether the demand of Cenvat credit on inputs sent to job workers, the penalty, and the interest liability were sustainable.

Analysis: The appellant produced job work challans for a substantial part of the disputed consignments, and the authenticity of those challans was not disputed. In the absence of positive evidence of illicit diversion of inputs, mere inability to produce challans for some consignments did not justify invocation of Section 11AC. At the same time, the wrong availment of Cenvat credit to the extent upheld remained liable to penalty under the Central Excise Rules, and pre-show-cause payment did not extinguish interest liability under Section 11AB.

Conclusion: The reduced demand, the penalty of Rs. 50,000, and the interest liability were upheld; the request for further relief failed.

Final Conclusion: The common order of the Commissioner (Appeals) was affirmed in substance, with the waste oil demand remaining set aside and the balance reliefs rejected, resulting in dismissal of both appeals.

Ratio Decidendi: Used lubricating oil drained out after use in machinery is not excisable merely because it is waste oil, and penalty under Section 11AC cannot be imposed without positive evidence of deliberate evasion, though interest remains payable on wrongly availed credit notwithstanding prior payment before notice.

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