Exemption for waste and scrap survived mistaken duty payment on otherwise exempt goods under Notification No. 89/95-C.E.

Waste and scrap arising from manufacture of goods exempt under another notification remained eligible for Notification No. 89/95-C.E. The fact that some finished goods were mistakenly cleared on payment of duty did not alter their character as exempted goods, because the notification's explanation defines exempted goods by their legal exemption status, not by whether duty was actually paid. The proviso to the notification therefore did not apply, and the department's reliance on erroneous duty payment was rejected. The exemption was held available and the duty demand on the waste and scrap was unsustainable.

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Issues: Whether waste and scrap cleared by the assessee were covered by Notification No. 89/95-C.E. despite some finished goods having been erroneously cleared on payment of duty, and whether the proviso to the notification barred the exemption.

Analysis: The exemption under Notification No. 89/95-C.E. applied to waste, parings and scrap arising in the course of manufacture of exempted goods. The explanation defined exempted goods as excisable goods chargeable to nil rate or exempted from the whole of duty under another notification. Coaches, coach components and containers were shown to be exempt under Notification No. 62/95-C.E. during the material period. Mere erroneous payment of duty on such goods did not change their character into non-exempted goods. The proviso, therefore, was not attracted, and the department's reliance on actual duty payment was misplaced.

Conclusion: The assessee was entitled to the benefit of Notification No. 89/95-C.E., and the duty demand on the waste and scrap was unsustainable.

Final Conclusion: The exemption was held applicable, the demand was quashed, and the appeal succeeded.

Ratio Decidendi: Goods otherwise exempt under a notification do not lose their status as exempted goods merely because duty was mistakenly paid on them; the proviso to an exemption notification must be applied according to the notification's own definition of exempted goods.

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