Exempted Goods Scrap Exemption survives despite erroneous duty payment on finished goods, preserving relief for manufacturing waste.

Steel and aluminium scrap arising during manufacture of railway coaches and parts remained exempt under Notification No. 89/95-CE because the finished goods were otherwise exempted under Notification No. 62/95-CE. The Tribunal applied the principle that erroneous payment of duty on goods that are in fact exempt does not change their exempt character, so waste, parings and scrap generated in manufacture continue to qualify for scrap exemption from exempted goods. The departmental reliance on the proviso was rejected on these facts, and the demand was held unsustainable.

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Issues: Whether steel scrap and aluminium scrap arising in the manufacture of railway coaches and parts continued to qualify for exemption under Notification No. 89/95-CE when the finished goods had been cleared on payment of duty, though they were otherwise exempted goods under Notification No. 62/95-CE.

Analysis: The relief turned on the character of the manufactured goods and the scope of the scrap exemption. The Tribunal followed the High Court's view in the respondent's own case that the erroneous payment of duty on exempted goods does not alter their exempted character. So long as the manufactured goods are exempted goods, waste, parings and scrap arising in the course of manufacture remain entitled to exemption under Notification No. 89/95-CE, and the proviso relied on by the Department does not apply on these facts.

Conclusion: The scrap was eligible for exemption and the demand was unsustainable.

Final Conclusion: The appeal failed, and the order granting relief to the assessee was left undisturbed.

Ratio Decidendi: Erroneous payment of duty on goods that are otherwise exempted does not deprive waste and scrap arising in their manufacture of the exemption available to scrap from exempted goods.

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