Job-work scrap remains dutiable, SSI exemption denied, and demand cannot exceed the show-cause notice.

Scrap arising from job work was held dutiable and not eligible for SSI exemption under the notification relied on, with Rule 57F(5) of the Central Excise Rules, 1944 governing liability for the relevant period. Duty on the amortised value of dies and moulds and on scrap paid before the show-cause notice was appropriated, while the adjudicating authority could not confirm duty beyond the scope of that notice. Penalty under Section 11AC and interest under Section 11AB were sustained on the basis of the duty liability, and the Rule 173Q penalty remained undisturbed.

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Issues: (i) whether the demand and duty liability in relation to scrap generated during job work and the amortized value of dies and moulds could be sustained, including the plea of SSI exemption for the scrap; (ii) whether the penalty under Section 11AC of the Central Excise Act, 1944 and the interest under Section 11AB of the Central Excise Act, 1944 were liable to be sustained; and (iii) whether the adjudicating authority could travel beyond the scope of the show-cause notice while confirming the demand.

Issue (i): whether the demand and duty liability in relation to scrap generated during job work and the amortized value of dies and moulds could be sustained, including the plea of SSI exemption for the scrap

Analysis: The duty on the amortized value of the dies and moulds as well as the duty on the scrap had already been paid before issuance of the show-cause notice, and those amounts were appropriated in adjudication. On the merits, the scrap arose from job work and was not eligible for SSI benefit under the notification relied upon by the assessee. For the relevant period, the scrap generated in the course of job work was governed by Rule 57F(5) of the Central Excise Rules, 1944, under which appropriate duty was payable. The assessee's belated payment did not displace the liability.

Conclusion: The duty liability on the scrap was upheld, while the levy could not stand beyond the extent lawfully supportable on the record.

Issue (ii): whether the penalty under Section 11AC of the Central Excise Act, 1944 and the interest under Section 11AB of the Central Excise Act, 1944 were liable to be sustained

Analysis: The ingredients relevant for penalty under Section 11AC were treated as materially similar to those supporting invocation of the proviso to Section 11A(1), and the assessee's conduct in paying duty after the departmental action supported the imposition of penalty under that provision. The penalty under Rule 173Q was not interfered with for want of challenge. Interest under Section 11AB followed the same basis as the extended-period demand and was therefore payable for the period from 28-9-1996 until actual payment of duty.

Conclusion: The penalty under Section 11AC and the interest under Section 11AB were sustained, and the penalty under Rule 173Q remained undisturbed.

Issue (iii): whether the adjudicating authority could travel beyond the scope of the show-cause notice while confirming the demand

Analysis: The show-cause notice demanded duty of Rs. 79,230/-, whereas the adjudicating authority confirmed Rs. 83,591/-. The excess demand was beyond the notice and could not be sustained. The lower appellate authority was correct to the extent it noticed this jurisdictional defect.

Conclusion: The adjudicating authority could not confirm duty beyond the scope of the show-cause notice.

Final Conclusion: The appeal succeeded only in part: the duty and consequential liability were affirmed only to the extent lawfully supportable, the excess demand beyond the notice was set aside, the Section 11AC penalty was restored for fresh quantification, the Section 11AB interest was upheld, and the Rule 173Q penalty remained undisturbed.

Ratio Decidendi: In excise adjudication, a demand cannot travel beyond the show-cause notice, but scrap arising from job work is not entitled to SSI exemption and remains dutiable under the applicable job-work scrap rule; where the statutory ingredients are met, penalty and interest consequential to suppressed duty liability are sustainable.

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