TaxTMI 
TaxTMI 
2000 (9) TMI 710
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....s, they were discarded, cut into small pieces and dumped in the factory stock yard. The cut pieces were either sold to employees at a nominal price or gifted to guests who visited the factory. Department alleged that, during the period, April, 1994 to October, 1995, the appellants removed felts prematurely from their machine, cut them into pieces of different sizes and sold the pieces to consumers clandestinely without payment of Central Excise duty or reversal of Modvat credit. Department took the view that the cut pieces of the felts so cleared from the factory could be used as carpet (classifiable under Tariff sub-heading 5702.00) attracting duty @ 30%. They further alleged that the appellants, in their letter dated 18-7-1995 in reply to queries of the Central Excise Range Superintendent, defined the capital goods wrongly with intent to evade payment of duty by not reversing Modvat credit at appropriate rate as per the provisions of Rule 57-S(1)(ii). Raising these allegations, Department issued show cause notice dated 27/29-8-1996 proposing to recover an amount of Rs. 35,13,951.00 (estimated to be the Modvat credit taken on the woollen felts allegedly cleared as cut pieces durin....
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....lso charged on the duty amount under Section 11AB of the Act. This order of the Commissioner is under challenge in the present appeal. 2. We have carefully examined the impugned order and connected records. We have also heard Shri S.K.Bagaria and Shri K.K.Anand, Counsel for the appellants and Shri Mewa Singh, SDR for the respondents. Ld. Counsel submitted that the cut pieces of the old felts which were discarded on account of their having outlived utility for the process of manufacture, were nothing but waste and scrap and no Central Excise duty was leviable on such waste and scrap since Chapter 59 of the Central Excise Tariff did not contain any provision for charging duty on waste and scrap of felts falling under Heading No. 59.11. In support of his submission, ld. Counsel relied on the following decisions : (i) Nicco Corporation Ltd. v. CCE, Bolpur [1998 (97) E.L.T.106 (T)]. (ii) Carborundum Universal Ltd., Hosur v. CCE [1999 (107) E.L.T. 100 (T)] = 1999 (30) RLT 446 (CEGAT). (iii) Knit Foulds Pvt. Ltd. v. CCE, Chandigarh [1997 (95) E.L.T. 517 (T)]. (iv) CCE, Hyderabad v Spartek C....
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....at there was no warrant for imposition of any penalty under Rule 173Q or under Rule 209 inasmuch as the appellants had not contravened any of the provisions of law. Counsel, therefore, prayed for setting aside the impugned order and allowing the appeal. 3. Opposing the above submissions, ld. DR reiterated the SCN allegations and the Commissioner's observations and findings and further submitted that the Central Excise Tariff did not make any distinction between felts in running length and those in cut pieces and, therefore, the cut pieces of the felts cleared by the party were chargeable to duty at the same rate as felts in running length falling under Chapter Heading 59.11. He contended that the felts became useless for the manufacturing process only after cutting thereof into pieces. He opposed the plea of waste and scrap on this basis. He, further, submitted that the appellants had not filed any classification list for the goods in question, thereby contravening Rule 173B. Such contravention of law was enough for invoking the extended period of limitation under the proviso to Section 11A(l). He, further, argued that the power of the Commissioner to impose penalty under Rul....
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.... "Provided further that where the capital goods are removed after being used in or in relation to manufacture of final products from the factory for home consumption on payment of duty of excise or for export under rebate on payment of duty of excise, such duty of excise shall be calculated by allowing deduction of 2.6 per cent of credit taken for each quarter of a year of use or fraction thereof, from the date of availing credit, except where such capital goods are sold as waste and scrap, the duty leviable shall be at the rate applicable on such waste and scrap." The above proviso is applicable only to two situations. Where the capital goods are removed after being used in or in relation to manufacture of final products, from a factory for home consumption on payment of duty or for export under rebate on payment of duty, such duty shall be calculated by allowing deduction of 2.5% of the Modvat credit taken for each quarter of a year of use or fraction thereof from the date of availing credit. It is not disputed that the appellants did not clear the felts as such from their factory either for home consumption or for export. Therefore, there was no question of payment of duty of e....