Waste biscuits not excisable; Cenvat credit on packing materials allowed absent proof of non-use in manufacture.

Broken, damaged and wastage biscuits arising incidentally during manufacture were treated as refuse or waste, not deliberately manufactured excisable goods, and the later amendment to the definition of excisable goods under Section 2(d) of the Central Excise Act, 1944 did not apply to the relevant period; duty was therefore not payable. Cenvat credit on input packing materials could not be denied where the materials were shown to have been used in biscuit manufacture and damaged in the process, and the Department relied only on a variance report without proving that the inputs were not used in or in relation to manufacture. The impugned order was set aside and the appeal allowed with consequential relief.

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Issues: (i) whether broken, damaged and wastage biscuits generated during manufacture were excisable goods liable to duty; (ii) whether Cenvat credit on input packing materials could be denied on the basis of the variance report in the absence of evidence that the inputs were not used in or in relation to manufacture.

Issue (i): whether broken, damaged and wastage biscuits generated during manufacture were excisable goods liable to duty.

Analysis: The demand rested on a variance report and the claim that excess consumption of raw materials showed clandestine clearance of broken and damaged biscuits. The earlier Tribunal view treated such broken or waste biscuits as refuse or wastage arising during the manufacturing process and not as deliberately manufactured excisable goods. The amendment to the definition of excisable goods under Section 2(d) of the Central Excise Act, 1944, having taken effect later, was held inapplicable to the relevant period.

Conclusion: The broken, damaged and wastage biscuits were not liable to excise duty for the period in dispute.

Issue (ii): whether Cenvat credit on input packing materials could be denied on the basis of the variance report in the absence of evidence that the inputs were not used in or in relation to manufacture.

Analysis: The packing materials were shown to have been used in the manufacture of biscuits and damaged in the process. The Department relied only on the variance statement and produced no contrary evidence to show that the inputs were not used in or in relation to manufacture of the final product. On that material, denial of credit was not justified.

Conclusion: Cenvat credit on the input packing materials could not be denied.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief as permissible in law.

Ratio Decidendi: Waste or broken goods arising incidentally in the course of manufacture are not excisable merely because they may fetch value, and Cenvat credit cannot be denied where the Department fails to prove that the inputs were not used in or in relation to manufacture.

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