Excise duty on factory scrap cleared after credit use was rejected where the new rule basis was not in the notices.

Duty of excise was held not payable on carton waste, crown waste, glass scrap, crate scrap, pet-bottle scrap, PVC cans and plastic crowns cleared from the factory. The Tribunal noted that Rule 57F(18) of the Central Excise Rules, 1944 could not be invoked for the first time in appeal because it had not been relied upon in the show-cause notices, leaving the assessee no opportunity to meet that case at adjudication. The Department also failed to show why the Supreme Court ruling on used or waste containers cleared after MODVAT/CENVAT credit was inapplicable, and the contrary precedent cited by it was distinguishable. The duty demand was therefore unsustainable.

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Issues: Whether duty of excise was payable on carton waste, crown waste, glass scrap, crate scrap, pet-bottle scrap, PVC cans and plastic crowns cleared from the factory, and whether Rule 57F(18) of the Central Excise Rules, 1944 could be invoked for the first time in appeal when it was not relied upon in the show-cause notices.

Analysis: The rule governing removal of waste arising from processing of inputs was not invoked in the show-cause notices, so the assessee had no occasion to meet that case at the adjudication stage. The adjudicating authority had instead examined the excisability of the materials and held that no duty was payable, relying on the Supreme Court ruling on used or waste containers cleared after availing MODVAT/CENVAT credit. The Department did not show why that ruling was inapplicable. The Tribunal further noted that the cited precedent supporting the Department was distinguishable because applicability of the rule was not in dispute there.

Conclusion: The duty demand was not sustainable and the appeal was rejected.

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