Cenvat credit and confiscation issues: scrap exemption and intra-premises movement defeated duty demand, while shortage credit was remanded for re-quantification.

Confiscation of plastic scrap and duty demand on partly finished plastic containers were held unsustainable where the scrap was treated as an intermediate product for recycling covered by Notification No. 67/95-CE, and the containers were merely shifted within the premises due to lack of space rather than cleared for sale; the confiscation and related duty demand were set aside. On the alleged shortage of plastic granules, the shortage finding was upheld, but the cenvat credit demand could not be sustained on a value-based duty computation and had to be re-quantified by reference to the credit actually availed on the disputed quantity. The penalty linked to that demand was also set aside and the matter remanded for limited re-determination.

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Issues: (i) Whether the confiscation of 780 KG of plastic scrap and the duty demand on plastic containers allegedly cleared to the adjacent unit were sustainable. (ii) Whether the cenvat credit demand based on alleged shortage of plastic granules was liable to be sustained in full or required re-quantification.

Issue (i): Whether the confiscation of 780 KG of plastic scrap and the duty demand on plastic containers allegedly cleared to the adjacent unit were sustainable.

Analysis: The scrap was found unentered in the RG-1 register, but the material was treated as an intermediate product meant for recycling and covered by the exemption under Notification No. 67/95-CE. The containers found in the passage and in the adjacent premises were not fully finished goods and had merely been shifted due to lack of space, so they could not be treated as cleared without payment of duty.

Conclusion: The confiscation of the scrap and the plastic containers, together with the duty demand of Rs. 9,398/-, was unsustainable and was set aside in favour of the assessee.

Issue (ii): Whether the cenvat credit demand based on alleged shortage of plastic granules was liable to be sustained in full or required re-quantification.

Analysis: The plea that the shortages were covered by job work challans was not accepted, because the authorised representative had no explanation at the time of stock verification and the subsequent documents were treated as an afterthought. However, the demand had been quantified by adopting a value basis and applying duty at 16%, whereas only the cenvat credit originally availed on the short quantity was recoverable. The correct credit attributable to the disputed quantity had therefore to be worked out from the purchase invoices and the matter remanded for that limited purpose.

Conclusion: The finding of shortage was upheld, but the cenvat credit demand and consequential penalty were set aside to the extent of quantification and remanded for re-determination.

Final Conclusion: The appeal succeeded in part: the confiscation and duty demand on the scrap and containers were annulled, while the shortage-based credit demand was not finally decided and was sent back for fresh quantification.

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