SSI exemption turnover excludes reusable scrap sent for job work and returned for further manufacture, absent clandestine removal.

Waste and scrap sent to a job worker for conversion and received back for use in further manufacture were treated as goods with a manufacturing nexus and, at least, as captively consumed inputs. Because there was no allegation of clandestine removal or diversion, the value of such clearances was not includible in the aggregate turnover for SSI exemption. The procedural lapse of not following the job-work notification did not change the substantive character of the clearances. The duty demand, interest and equal penalty were therefore unsustainable and were set aside.

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Issues: Whether waste and scrap cleared to a job worker for conversion and received back for use in manufacture had to be included in the aggregate value of clearances for denial of SSI exemption, and whether the duty demand, interest and penalty could survive.

Analysis: The waste and scrap was sent out under delivery notes, converted into angles and channels by the job worker, and received back under invoices for use in further manufacture. These facts were not disputed. There was no allegation of clandestine removal or diversion. The clearances were therefore treated as having a manufacturing nexus and, at the least, as captively consumed/reusable inputs. Clearances of specified goods used as inputs for further manufacture are excluded from the aggregate value for SSI exemption purposes. On that basis, the value of such scrap was not liable to be added to the aggregate turnover for the notification. The procedural lapse of not following the job-work notification did not alter the substantive character of the clearances.

Conclusion: The demand of duty, interest and equal penalty was unsustainable and was set aside in favour of the assessee.

Final Conclusion: The appeals succeeded because the disputed scrap clearances were held not includible in the SSI exemption turnover computation, with the consequential liability also falling.

Ratio Decidendi: Reusable scrap or intermediate goods sent for job work and returned for further manufacture are not includible in the aggregate value of clearances for SSI exemption where there is no clandestine removal or diversion and the goods are used in manufacture.

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