Unsubstantiated scrap estimates and unproved suppression cannot support excise demand or extended limitation in job-work processing.

Duty on scrap generated in job-work processing cannot be sustained where the department relies on an undisclosed and unsubstantiated estimate of scrap loss and the factual basis for the percentage adopted is not supported by the record. The demand is therefore stated to fail on merits. Extended limitation for suppression likewise is unavailable where the department was itself required to determine the waste percentage under Rule 57F(2), had accepted the assessee's working for years, and suppression was not established on the uncertain facts regarding scrap generation. The note records that the impugned order was set aside and consequential relief followed.

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Issues: (i) whether duty on scrap generated in job-work processing could be sustained on the basis of the percentage adopted by the department, and (ii) whether the extended period of limitation could be invoked on the allegation of suppression of facts.

Issue (i): whether duty on scrap generated in job-work processing could be sustained on the basis of the percentage adopted by the department.

Analysis: The department had no clear and reliable determination of the extent of scrap generated. The assessee had earlier given only an approximate figure, which had been acted upon by the department, while the departmental verification report itself indicated a different factual position regarding the material returned and lost in the job-worker's hands. The demand was ultimately founded on a departmental estimate of loss, but the basis for the estimate was not disclosed and the record did not justify the figure adopted.

Conclusion: The demand on merits was not sustainable against the assessee.

Issue (ii): whether the extended period of limitation could be invoked on the allegation of suppression of facts.

Analysis: The department was itself required, while granting permission under Rule 57F(2) of the Central Excise Rules, to determine the waste percentage and regulate disposal accordingly. Instead, it accepted the assessee's working for several years and then alleged suppression. In these circumstances, and where the factual position regarding scrap generation remained uncertain, the necessary element for invoking the extended period was not established.

Conclusion: The extended period of limitation was not available to the Revenue against the assessee.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief according to law.

Ratio Decidendi: A demand based on an undisclosed and unsubstantiated estimate of scrap generation cannot stand on merits, and the extended limitation period cannot be invoked where the department has itself accepted the assessee's working and suppression is not established.

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