Full Judgment
2. Ld. Counsel stated that the appellants are engaged in the manufacture of Nylon filament Yarn falling under Chapter Heading 54.02.
4. During the process of manufacture the caprolactum is first converted into chips known as polychips.
5. The caprolactum is a monomer and is converted into polyamide chips by polymerisation. During the process the caprolactum is not fully reacted and the material extruded is washed and the unreacted caprolactum is removed from the ribbon. The said unreacted caprolactum is contained in the wash water which is captively used for recovery of caprolactum.
6. During the above process of manufacture of polyamide chips certain lump and ribbon waste is also generated. This waste has been classified under heading 3915.90 and the appellants had claimed exemption from duty under relevant notification. The matter regarding correct classification is under dispute. The material in question was thus an unprocessed one and was not required to be entered in RG 1. In fact the quantity of waste ribbon which has been seized was lying on the polymerisation area on the second and third floor. These waste ribbons are cut into smaller pieces for recovery of caprolactum. Similarly the lump waste was lying in a store room (waste godown) for recovery as aforesaid.
7. The waste both in the form of lumps and ribbon waste is thus normally used for captive consumption only and only occasionally it has been sold.8. The quantity of ribbon lying on second and third floor was treated by them as a work-in-process material and therefore no entries were made regarding it in RG1.
9. It was also their contention that in any case because waste in the form of lumps as well as ribbons is exempt from duty under Notification No. 217/86 which allows exemption to such materials manufactured in the factory and used within the factory of production or in any other factory of the same manufacture in or in relation to the manufacturer of the final products and in the table annexed to this notification the Col. 2 for inputs includes Chapter 39 and Col. 3 for final product includes Chapter 54. In the circumstances, even if it was considered that the material was required to be entered in RG 1 before captive consumption the violation at best would be technical and lenient view was called for.
10. It was therefore their contention that since it was a work-in-process material and RG 1 stage had not reached, therefore in the normal course the entry was not required to be made at that stage, hence, no fine and penalty should have been imposed. It is their alternative prayer that even if it was considered that it was required to be entered in RG 1 then being purely exempted item, the violation could be only considered as a technical breach. The Deputy Commissioner has however imposed a fine of Rs. 50,000/- and his order has been confirmed by the ld. Commissioner (Appeals) and this being on the higher side, they would request for a lenient view.
11. Ld. DR stated that their description of manufacturing process is not in dispute. The fact that waste in the form of lumps and ribbons is generated during the process of utilisation of caprolactum for making polyamide chips by polymerisation for further use in the manufacture of nylon filament yarn is not under challenge.
12. The fact that the benefit of exemption Notification No. 217/86 (as amended) was available to the appellant is also not in dispute. It was however department's contention that they ought to have entered the entire quantity in question in RG 1 before further use whether for captive consumption or otherwise.
13. In the circumstances, since they had admittedly not entered the quantity in RG 1 they were liable to fine and penalty. He leaves it to the bench to consider their prayer regarding leniency in the circumstances of the case.
14. I have considered the above submissions. I observe that the facts are not in dispute and it is also not in dispute that the material in question is generated during the process of manufacture and being a waste material which was captively consumed it was wholly exempt from duty under Notification No. 217/86.
15. The appellants have also stated that a substantial portion of the quantity was in the polymerisation area on 2nd and 3rd floor and this fact has not been disputed and the department has not been able to show that the material at this stage had already reached the RG 1 stage, but admittedly certain quantity was already in the store room (waste godown).
16. In the circumstances, the ld. DR is also correct in pointing out that if such waste material was subsequently required for recovery of in that case the RG entries should have been made before such use. At the same time I note that the item was admittedly a wholly exempted item as accepted by both the sides. Therefore, the violation cannot be considered as serious one and a fine of Rs. 50,000/- also appears to be on the higher side. In the circumstances, I reduce the fine from Rs. 50,000/- (Rs. Fifty Thousand only) to Rs. 5,000/- (Rs. Five Thousand only). I also consider that in the circumstances, the penalty was not called for as penalty need not be imposed in the case of merely technical or venial breaches.