2026 (3) TMI 649 - AT - Central Excise

Double taxation prohibition: duty paid on scrap bars a fresh duty demand on corresponding raw materials; penalty also quashed.

Where duty has been assessed and paid on scrap, a subsequent demand charging duty on the same raw materials alleged to have produced that scrap was held ... Demand of duty on raw materials consumed in excess of SION norms - duty already been demanded and paid on scrap generated from those raw materials - Prohibition against double taxation of duty on raw materials and duty on scrap - imposition of penalty for clearances of scrap in excess of SION norms. Prohibition against double taxation of duty on raw materials and duty on scrap - HELD THAT:- The Tribunal held that where duty was demanded and paid on scrap cleared in excess of SION norms, an additional demand of duty on the quantity of raw material alleged to have gone into generation of that excess scrap would amount to demanding duty twice on the same raw material. The Revenue produced no contrary evidence of diversion of excess raw material. In these circumstances the confirmation of duty on the excess raw material was set aside as legally unsustainable. [Paras 6, 7] The confirmation of demand of duty on the excess raw materials was set aside. Validity of penalty imposed for clearance of scrap in excess where the appellant is a 100% EOU under departmental supervision and had disclosed relevant facts - HELD THAT:- The Tribunal found that the appellant, being a 100% EOU, had informed the Department of manufacturing processes and scrap generation and operated under direct supervision of Central Excise officers; therefore, imposition of penalty for clearance of scrap in excess was unwarranted. Having regard to the supervision and disclosures, the penalty was held to be unsustainable and was set aside. [Paras 7] The penalty imposed was set aside. Final Conclusion: The appeal was allowed in part: the demand of duty on excess raw materials was quashed and the penalty was set aside, while the admitted duty on scrap clearances remained unaffected. Issues: (i) Whether demand of duty on raw materials consumed in excess of SION norms is sustainable where duty has already been demanded and paid on scrap generated from those raw materials; (ii) Whether imposition of penalty for clearances of scrap in excess of SION norms is sustainable where the appellant is a 100% EOU operating under departmental supervision.Issue (i): Whether the Department can demand duty on raw materials consumed in excess of SION norms in addition to duty already demanded and paid on scrap generated from those raw materials.Analysis: The assessment record shows demand and payment of duty on clearances of excess scrap. No evidence was produced to demonstrate diversion of excess raw materials. Demanding duty again on the quantity of raw materials alleged to have gone into generation of excess scrap results in charging duty twice for the same physical quantity which produced scrap already charged.Conclusion: Demand of Rs.4,55,365/- being duty on raw materials consumed in excess of SION norms is set aside. This conclusion is in favour of the assessee.Issue (ii): Whether the penalty imposed for clearance of scrap in excess of SION norms is sustainable against a 100% EOU under departmental supervision.Analysis: The appellant, a 100% EOU, had declared manufacturing processes and scrap generation to authorities and operated under direct supervision and control of departmental officers. In the absence of contrary evidence of concealment or diversion, imposition of penalty for excess scrap clearances is not warranted.Conclusion: The penalty of Rs.7,02,695/- imposed on the appellant is set aside. This conclusion is in favour of the assessee.Final Conclusion: The impugned order is modified by cancelling the demand of duty on excess raw materials and by setting aside the penalty; other confirmed demands on scrap which were not disputed remain unaffected, resulting in a partly favourable outcome for the assessee.Ratio Decidendi: Where duty has been assessed and paid on scrap generated, a subsequent demand charging duty on the same raw materials alleged to have produced that scrap constitutes double taxation and is impermissible in the absence of evidence of diversion or concealment.