PSF manufacturer using 90% PET bottle scrap and 10% popcorn waste entitled to concessional duty benefits under notifications

CESTAT NEW DELHI held that appellant manufacturing PSF using 90% PET bottle scrap and 10% popcorn waste was entitled to nil/concessional duty benefits under relevant notifications. The court ruled that absence of words "only," "exclusively," or "entirely" in notifications meant benefit could not be denied for mixed raw materials. Popcorn waste qualified as plastic waste for notification purposes, supporting recycling objectives. Extended limitation period under section 11A(4) was wrongly invoked as no deliberate suppression of facts existed - appellant had disclosed popcorn usage in returns and investigations. Penalty on Director was also set aside for lack of evidence regarding knowledge of confiscation liability. Appeals allowed, impugned order set aside.

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Issues Involved:
1. Admissibility of exemption from central excise duty under specific notifications.
2. Classification of 'popcorn' as plastic waste.
3. Invocation of the extended period of limitation under section 11A(4) of the Central Excise Act.
4. Imposition of penalty upon the Director under rule 26(1) of the Central Excise Rules.

Detailed Analysis:

1. Admissibility of Exemption from Central Excise Duty:
Issue: Whether the appellant is entitled to the benefit of exemption from central excise duty under Serial No. 172A of Notification dated 17.03.2012 and Serial No. 70A of Notification dated 01.03.2011, despite using 'popcorn' waste along with PET bottle scrap in manufacturing PSF.

Analysis:
- The appellant used PET bottle scrap (90%) and 'popcorn' waste (10%) to manufacture PSF.
- The adjudicating authority denied the exemption, interpreting that the benefit under the Notifications was available only if PSF was manufactured from specified inputs (plastic scrap, plastic waste, and PET bottle waste) exclusively.
- The appellant contended that the Notifications did not use restrictive terms like 'only,' 'exclusively,' 'wholly,' or 'entirely,' and hence, the benefit could not be denied for using a small quantity of 'popcorn' waste.
- The Tribunal relied on Supreme Court judgments in Tata Iron and Steel Co. Ltd. and JMK Energy, which held that in the absence of restrictive terms in the Notification, the benefit should not be denied even if other materials are used.
- The Tribunal concluded that the appellant is entitled to the benefit of the Notifications, as the Notifications did not explicitly restrict the use of 'popcorn' waste.

2. Classification of 'Popcorn' as Plastic Waste:
Issue: Whether 'popcorn' used by the appellant qualifies as plastic waste under the Notifications.

Analysis:
- The adjudicating authority, based on CRCL reports, inferred that 'popcorn' is a primary form of PET and not plastic waste.
- The appellant provided reports from expert institutions (CIPET, MANTRA, IIT Roorkee) stating that 'popcorn' is a recycled PET plastic waste material.
- The Tribunal found that these reports clearly establish 'popcorn' as recycled PET plastic waste, which should qualify under the Notifications.
- The Tribunal noted that the purpose of the Notifications was to encourage recycling of plastic waste, and denying the benefit for using 'popcorn' contradicts this purpose.

3. Invocation of Extended Period of Limitation:
Issue: Whether the extended period of limitation under section 11A(4) of the Central Excise Act was correctly invoked.

Analysis:
- The show cause notice alleged that the appellant suppressed the use of 'popcorn' to evade duty.
- The appellant argued that it had disclosed all necessary information in the ER-1 returns and during audits, and there was no intent to evade duty.
- The Tribunal cited Supreme Court judgments in Pushpam Pharmaceuticals and Anand Nishikawa, stating that suppression must be deliberate to evade duty.
- The Tribunal found no evidence of deliberate suppression by the appellant and noted that the department had opportunities to scrutinize the returns and audit findings.
- The Tribunal concluded that the extended period of limitation could not be invoked as there was no deliberate suppression by the appellant.

4. Imposition of Penalty upon the Director:
Issue: Whether the imposition of penalty upon the Director under rule 26(1) of the Central Excise Rules is justified.

Analysis:
- The appellant contended that no evidence was provided to prove that the Director dealt with goods liable to confiscation with knowledge of such liability.
- The Tribunal noted that since the demand itself was found unsustainable, the penalty on the Director could not be justified.

Order:
- The impugned order dated 16.09.2020 passed by the adjudicating authority was set aside.
- The appeals were allowed, and the demand of central excise duty, interest, and penalties were quashed.

(Order Pronounced on 25.09.2024)

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