Conditional exemption for waste and scrap fails when the factory also manufactures dutiable goods, while penalty is deleted.

Notification No. 89/95-C.E. granted exemption for waste, parings and scrap arising from manufacture of exempted goods, but its proviso barred the benefit where the same factory also manufactured other excisable goods. Because the factory in question admittedly produced both exempted and dutiable goods, the exemption could not be claimed and the denial was upheld. On penalty, the facts did not justify penal action, so the penalty was set aside. The result was rejection of the exemption claim with deletion of the penalty, giving the assessee only partial relief.

---

---

Issues: (i) Whether waste and scrap arising from the manufacture of exempted goods qualified for exemption under Notification No. 89/95-C.E. when the same factory also manufactured dutiable excisable goods; (ii) whether the penalty imposed on the appellants was sustainable.

Issue (i): Whether waste and scrap arising from the manufacture of exempted goods qualified for exemption under Notification No. 89/95-C.E. when the same factory also manufactured dutiable excisable goods.

Analysis: The notification exempted waste, parings and scrap arising in the course of manufacture of exempted goods, but its proviso excluded waste and scrap cleared from a factory in which any other excisable goods, other than exempted goods, were also manufactured. The factory admittedly manufactured both exempted and dutiable goods. The exemption was therefore conditional and depended upon strict fulfillment of the notification's requirements.

Conclusion: The denial of exemption was correct and is upheld against the assessee.

Issue (ii): Whether the penalty imposed on the appellants was sustainable.

Analysis: In the facts and circumstances of the case, the imposition of penalty was not warranted despite the denial of exemption.

Conclusion: The penalty is set aside in favour of the assessee.

Final Conclusion: The exemption claim failed, but the penalty component was deleted, resulting in only a partial relief to the appellants.

Ratio Decidendi: A conditional exemption notification must be satisfied strictly according to its terms, and the benefit cannot be claimed when the expressly stated exclusion applies.

---