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TMI Blog2009 (5) TMI 463X X X X Extracts X X X X X X X X Extracts X X X X ..... ory records. On comparison, it was noticed by the officers that there were some shortages/excesses in the physical stock of the finished goods and raw materials. The officers have seized certain records. On further investigation, it was found that apart from shortages of raw materials and finished goods, it was also noticed that the appellant had cleared cuttings and trimmings of veneers, as waste wood. On the conclusion of the investigation, it was noticed by the lower authorities that the appellant is liable to pay duty on the waste of cuttings and trimmings of the veneer wood and also on the shortages found. Accordingly, a show cause notice was raised directing the appellant to show cause as to why the cuttings and trimmings of veneer should not be classified under Chapter Heading No. 4404.90 and subjected to duty. It was also directed to show cause as to why the amount of duty on the shortages of the finished goods found should not be demanded and also on the modvat credit taken on the raw material / input which was found short during the stock taking procedure. The appellants resisted the show cause notice on various grounds. The adjudicating authority after considering the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the lower authorities in reply to the, show cause notice. It is his submission that the factory has been set up for manufacturing of plywood. Generation of waste in the manufacturing of plywood from the core veneer purchased and the face veneer purchased and cut to a size, which is required by the market, is an inevitable, consequence of the process of manufacture. It was also submitted that there is no conscious action on the use of inputs as raw materials or the labour for manufacturing of waste. It was also submitted that the decision of the Hon'ble Supreme Court in the case of Elphistone Metal Rolling Mills v. CCE, Bombay - 2004 (167) E.L.T. 481 (S.C.) and CCE v. Markfed Vanaspati and Allied Industries as reported in 2003 (153) E.L.T. 491 very clearly laid down the law that waste and scrap would be dutiable only when it is a manufactured product and not otherwise. It was also submitted that the Hon'ble Supreme Court in the case of UOI v. Ahmedabad Electricity Co. Ltd. - 2003 (158) E.L.T. 3 (S.C.) also took the same view. It was submitted that in this case there is no dispute that the waste in question has not emerged as result of the process of manufacture but has emerged as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that penalties imposed are correct and the entire Order-in-Appeal is right and there is no need for any interference. 5. We have considered the submissions made at length by both sides and perused the records. 5.1 On perusal of the records and the impugned order, we find that it is not disputed that the waste which is cleared by the appellant is nothing but cuttings and trimmings of veneer. These cuttings and trimmings of the veneer, according to the revenue, will fall under chapter heading No. 4404.90. In order to appreciate the claim of the revenue, we reproduce the Chapter Heading No. 4404. Heading No. Sub-heading No. Description of goods Rate of duty (1) (2) (3) (4) 44.04 Veneer sheets and sheets for plywood (whether or not sliced) and other wood sawn lengthwise, sliced or peeled, whether or not planed, sanded or finger-jointed, of a thickness not exceeding 6 mm. 4404.10 Veneer sheets, for match boxes and match splints. Nil 4404.20 In or in relation to the manufacture of which no process is ordinarily carried on with the aid of power. Nil 4404.30 Used within the factory of production for the manufacture of goods fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been laid down by the law. We find that the judgment of the Hon'ble Supreme Court in the case of UOI v. Ahmedabad Electricity Co. Ltd. (supra), very clearly lays down the law. We may reproduce the ratio contained the said judgment of the Lordships in paragraph 13 and 14. "13. We are unable to accept the proposition advanced by the learned Additional Solicitor General. A close look at Section 3 of the Central Excise Act shows that the words 'excisable goods' have been qualified by the words "which are produced or manufactured in India". Therefore, simply because goods find mention in one of the entries of the First Schedule does not mean that they become liable for payment of excise duty. Goods have to satisfy the test of being produced or manufactured in India. It is settled law that excise duty is a duty levied on manufacture of goods. Unless goods are manufactured in India, they cannot be subjected to payment of excise duty. There is no merit in the argument that simply because a particular item is mentioned in the First Schedule, it becomes exigible to excise duty. (See Hyderabad Industries Ltd. and Another v. Union of India and Others [(1995) 5 SCC 338 and Moti Laminates Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation of the demand of the duty, hence, the impugned order to this extent it upholds this confirmation of demand, is upheld 8. As regards the penalty, we find that the penalty has been imposed under Section 11AC of Central Excise Act, 1944. Since we have held that the demand of the duty on the waste wood is unsustainable, there cannot be any penalty on such an amount of duty. We find that the said penalty is also inclusive of the equivalent penalty on the shortages which were found in the appellant's factory. In our view, the imposition of penalty under Section 11AC would arise only if the ingredients in the said section are present. It is not in dispute in this case that the shortages of the finished goods are noticed in the factory premises and there is no allegation that these goods were clandestinely removed. The said shortages might have occurred due to improper accounting. In view of this, we are of the view that penalty under Section 11AC cannot be imposed on the appellants for the: shortages noticed in the factory premises during stock verification. 8.1 At the same time, we find that there is shortage in the factory premises, which would indicate a violation of rules, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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