Full Judgment
2. The question of excisability of 'waste' arises for consideration in these appeals.
3. The appeals have been filed against the order of the Collector of Central Excise dated 26-9-1988 confiscating HDPE bags/sacks manufactured and cleared by the appellants (redemption fine of Rs. one lakh in lieu thereof has been imposed) and imposing penalties on the appellants.
M/s. Kamath Packaging Pvt. Limited situated at Yeshwanthpur, Hubli, Bangalore North Taluk (hereinafter referred to as Unit-I) was licensed for the manufacture of HDPE tapes, sacks, bags, fabrics and laminated fabrics. Duty was being paid on HDPE tapes, sacks and bags from 1986 and HDPE fabrics were being cleared free of duty of the manufacture of sacks/bags. During the period of manufacture from May, 1986 to October, 1987 Unit-I generated a large quantity of waste arising in the course of manufacture of tapes and fabrics, the appellants started another Unit at Avaragere Village, Kunigal Taluk, Tumkur District (hereinafter referred to as Unit-II) on 1-6-1987 for the manufacture of HDPE tapes and unlaminated fabrics. Since there was large accommodation available in Unit II for storage purposes, the appellants decided to transfer some quantity of waste to Unit-II from Unit-I. Waste generated out of tape was accounted for in the RG-I Register as specifically provided for under Tariff Heading 5406.90. All other wastes namely, unlaminated fabric waste, laminated fabrics and bag/sack waste are not provided for under the Tariff. A show cause notice dated 4th April, 1988 was issued to the appellants for alleged contravention of Rules 9(2) 52A, 173Q(1) and 226 of the Central Excise Rules and they were also asked to show cause as to why they should not be penalised under Rule 209A of the Central Excise, Rules on the grounds that they are removing HDPE bags/sacks without accounting in Central Excise statutory records, without observing Central Excise procedures and without payment of Central Excise duty.
5. The Collector of Central Excise found that the seized goods which were released provisionally had been exported and held that in view of the fact that the goods are of a quality fit for export, they are rightly held to be dutiable goods and are to be appropriately accounted for in the Central Excise records and cleared on payment of central excise duty. In addition to confiscation of the goods he also imposed penalties on both the Units. It is against this order that the appellants have now come up in appeal before us.
6. We have heard Shri Shunmugasundaram, learned Consultant for the appellants and Shri Chandrasekharan, ld. SDR for the Department.
7. We notice that the show cause notice itself proceeds on the basis that the goods in question are waste namely, HDPE circular bag waste and laminated fabric waste. The annexure to the show cause notice also speaks of cut-pieces of damaged laminated fabrics and damaged waste bags. It is seen from the impugned order also it proceeds upon the basis that the goods are waste material. The Collector holds that the appellants have not disclosed earlier anything about waste material generated at the time of manufacture and its disposal to the Department and it is only after the department has registered a case against the appellants that they have come up with a plea that they are maintaining a private record of waste material obtained while manufacturing HDPE bags/sacks which was not made known to the Department till the seizure of the goods. He further holds that the appellants had not approached the Department about the accountal of waste material and its disposal before the seizure of the goods and, therefore, the claim of the appellants that the Department has not issued any directions for ac-countal/disposal of such waste material does not help them as the Department was not made aware of such facts. The Collector has come to the conclusion that the goods are dutiable goods solely on the basis that after provisional release the goods have been exported.
8. The appellants submit before us that their Unit received an export order from the United Kingdom for HDPE bags for packing salt in order to act as double liner to secure the contents from leakage etc. After release of the goods provisionally, the waste bags were cut and inserted as liners and the export was incidental to the export of undamaged bags for which the defective bags were used as liners. The appellants also submitted that the Unit has maintained a waste register wherein all waste generated has been recorded.
9. From the show cause notice and Annexure thereto and the impugned order, it is clear that the department has proceeded on the basis that the goods are waste. The question of excisability of waste has been settled in a plethora of decisions wherein it has been held that unless "waste" is specifically provided for in the Tariff it is not excisable.
This is the view of the Delhi High Court in the decision reported in 1987 (29) E.L.T. 502 and that of the Tribunal in 1987 (31) E.L.T. 748 among other decisions.
10. We have held that goods involved in the dispute being "waste material" not provided for in the tariff, they are not excisable goods and therefore, we set aside the order of the Collector of Central Excise and allow the appeals.