Invisible loss in manufacture justified scrap reduction, and excise duty demand on disputed scrap was not sustained.

In the manufacture of motor vehicle parts, excise duty on alleged scrap was not sustained because the manufacturing process was found to involve unavoidable invisible loss. The adjudicating authority relied on an actual experiment showing loss in forging, grinding, threading and allied operations, and the department did not rebut that factual basis. An allowance of 11% invisible loss was also found reasonable, especially where a similar case on comparable facts had accepted 12% loss. On that basis, the disputed scrap quantity was reduced by the allowable loss and the duty demand failed.

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Issues: Whether the demand of central excise duty on alleged scrap generated in the manufacture of motor vehicle parts was sustainable, and whether the adjudicating authority was justified in allowing 11% invisible loss while computing the quantity of scrap.

Analysis: The adjudicating authority had conducted an actual experiment and found that the manufacturing process involving forging, grinding, threading and allied operations necessarily resulted in invisible loss. The department did not demonstrate any basis for rejecting that finding or for denying such loss in its own calculation. The record also showed that in a similar case on comparable facts, an invisible loss of 12% had been accepted, and the 11% allowance in the present case was not shown to be unreasonable.

Conclusion: The finding that invisible loss existed and that 11% loss was allowable was upheld, and the duty demand on the disputed scrap was not sustained.

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