Scrap removal demand fails without proof of manufacture-linked generation and suppression; extended limitation also ruled out.

CESTAT, Bangalore held that a duty demand and penalties for alleged scrap removal could not stand without affirmative evidence linking the scrap to manufacture through mechanical working of metal. Mere reliance on annexures and a broad conclusion that the goods were scrap was insufficient, because the revenue had to prove the source of the scrap with clinching evidence and a clear factual finding. The extended period of limitation was also found inapplicable, as the presence of Central Excise officers in the factory undermined any allegation of suppression or clandestine removal. The appeal succeeded, the original order was set aside, and consequential relief followed.

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Issues: Whether the duty demand and penalties on alleged scrap were sustainable when the revenue had to prove that the scrap arose from mechanical working and whether the extended period of limitation could be invoked.

Analysis: The demand depended on proving that the scrap was generated during mechanical working of metal and not from construction materials. The adjudicating authority had not given a detailed finding supported by evidence as to how the listed items were linked to manufacturing activity. To sustain the demand and penalties, the revenue was required to produce clinching evidence establishing the source of the scrap. Mere reference to the annexures and a general conclusion that the goods were scrap was insufficient. The presence of Central Excise officers in the factory also weakened the allegation of prolonged clandestine removal and made invocation of the extended period unsustainable.

Conclusion: The duty demand and penalties were not sustainable, and the extended period of limitation could not be invoked.

Final Conclusion: The appeal succeeded and the order in original was set aside with consequential relief.

Ratio Decidendi: In excise proceedings, a duty demand based on alleged scrap removal cannot be sustained without affirmative evidence establishing manufacture-linked generation of the scrap, and the extended limitation period cannot be invoked in the absence of proven suppression or clandestine conduct.

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