Excisability of waste pulp and waste paper upheld, but extended limitation failed absent suppression or misstatement.

Waste pulp emerging after pulping and bleaching remained excisable despite inferior quality, and because it attracted a nil rate it was treated as an exempted product; in the absence of separate input accounts, credit reversal or payment under the Cenvat rules applied. Waste paper sweepings, having already come into existence as paper and being sold and bought as such, were also exigible to duty. However, the extended limitation period failed because disclosure in returns and prior departmental knowledge negatived suppression, so penalties were not sustainable beyond the normal period.

---

---

Issues: (i) whether the so-called waste pulp cleared from the hydratreator and sold by the assessee was excisable and, if so, whether it was to be treated as an exempted product attracting reversal of credit or payment under the relevant credit rules; (ii) whether waste paper sweepings cleared by the assessee were excisable goods liable to duty; and (iii) whether the extended period of limitation and penalties were sustainable.

Issue (i): whether the so-called waste pulp cleared from the hydratreator and sold by the assessee was excisable and, if so, whether it was to be treated as an exempted product attracting reversal of credit or payment under the relevant credit rules.

Analysis: The product emerged after pulping, bleaching and further processing of fibrous raw material. The fact that it was of inferior quality and not fit for the assessee's own use did not make it non-excisable. It was sold as pulp and bought for further use in manufacture of inferior paper and paper boards. Since the tariff item carried nil rate of duty, it was to be treated as an exempted product. The assessee manufactured dutiable paper as well as such exempted pulp and had not maintained separate accounts for inputs attributable to the exempted product.

Conclusion: The waste pulp was excisable and exempted, and liability under Rule 57AD of the Central Excise Rules, 1944 and Rule 6(3)(b) of the Cenvat Credit Rules, 2004 was correctly attracted.

Issue (ii): whether waste paper sweepings cleared by the assessee were excisable goods liable to duty.

Analysis: The paper had already come into existence as paper during the manufacturing process and only thereafter got wasted. It was sold as paper, though at a lower price, and buyers purchased it for use as paper. On that footing, it was exigible to duty under the relevant tariff heading.

Conclusion: Duty on waste paper was rightly demanded.

Issue (iii): whether the extended period of limitation and penalties were sustainable.

Analysis: The assessee had disclosed clearance of waste pulp in returns, so misstatement was not established. As regards waste paper, an earlier show cause notice had already raised the issue, showing departmental knowledge of the material facts. Hence suppression was not established and the longer limitation period could not be invoked. On the same reasoning, penalties were not justified.

Conclusion: The extended period of limitation and penalties were not sustainable.

Final Conclusion: The duty demands were upheld on merits for waste pulp and waste paper, but the demands and penalties beyond the normal period were set aside, resulting in partial relief to the assessee.

Ratio Decidendi: A waste product arising after manufacture and sold as an inferior variety of the same commercial commodity remains excisable, but the extended period cannot be invoked absent suppression or misstatement when the material facts were disclosed or otherwise within departmental knowledge.

---