Rule 57S(2)(c) duty on waste and scrap from capital goods upheld, with extended limitation also sustained.

Duty was held payable under Rule 57S(2)(c) on waste and scrap arising from capital goods on which Modvat credit had been taken, with duty linked to the transaction value of the cleared goods. The challenge that the rule was ultra vires the charging provision was not entertained in the appellate forum, and the demand was sustained. For limitation, the longer period was upheld because the assessee could not show disclosure of the clearances in statutory records or by documentary evidence, so departmental knowledge was not established. The penalty was substantially reduced.

---

---

Issues: (i) Whether duty was payable under Rule 57S(2)(c) on waste and scrap arising from capital goods on which Modvat credit had been taken, and whether the provision could be attacked as ultra vires Section 3 of the Central Excise Act, 1944; (ii) Whether invocation of the longer period of limitation was justified.

Issue (i): Whether duty was payable under Rule 57S(2)(c) on waste and scrap arising from capital goods on which Modvat credit had been taken, and whether the provision could be attacked as ultra vires Section 3 of the Central Excise Act, 1944.

Analysis: The obligation under Rule 57S(2)(c) applied where capital goods on which Modvat credit had been taken were cleared, and the assessee was required to pay duty equal to the duty leviable on transaction value. The reliance on decisions dealing with waste and scrap arising during dismantling was held inapposite because those authorities did not consider Rule 57S(2)(c). The objection that the provision was ultra vires the charging section was not entertained in the appellate forum.

Conclusion: The duty demand under Rule 57S(2)(c) was upheld, and the challenge to its validity failed.

Issue (ii): Whether invocation of the longer period of limitation was justified.

Analysis: The assessee did not produce documentary material to show that clearance of the capital goods as waste and scrap without payment of duty was disclosed to the department or reflected in statutory records. In the absence of such evidence, the factual basis for knowledge by the department was not established.

Conclusion: Invocation of the longer period of limitation was upheld.

Final Conclusion: The demand of duty was sustained in full, while the penalty was substantially reduced.

---