P.K. Desai, Member (J)

1. This appeal is directed against the Order-in-Original No. 44/CEX/1991 dt. 2-11-1991 of the Collector of Central Excise and Customs, Pune, dropping the duty demand holding the same as barred by limitation but imposing penalty of Rs. 25,000/- vide Rule 173Q of the Central Excise Rules, 1944.

2. The appellants are the manufacturers of Electric storage batteries and have opted for availment of duty credit under the MODVAT Scheme. For the purpose of manufacture of their final products, they purchased duty paid lead ingots and availed of credit for duty paid thereon. During the manufacturing process, substantial quantity of waste and scrap arose, which initially they cleared availing the benefit of exemption vide Notification No. 33/81. As per their claim, at a later stage, they however, realised that such a waste and scrap could be utilised for manufacture of Batteries after conversion into ingots and hence under the general permission obtained for the removal of ingot vide Rule 57F of the Rules, they started removing the waste and scrap, following procedure laid down under Rule 57F(2) of the Rules, to the job-workers who converted the scrap and waste into ingots and returned the same to the appellants. The waste and scrap were, during the same period, exempt from duty vide Notification 186/84. Vide amendment dt. 2-11-1987, the said notification was modified withdrawing the exemption to waste and scrap where MODVAT credit was availed of for the inputs. The appellants contend that because they were not removing the waste and scrap for sale, the modification did not affect them and hence continued to remove them following the procedure laid down in Rule 57F(2). A Show Cause Notice dt. 2-5-1991 was however, issued charging them to have contravened the provisions of Rule 173B, Rule 9(1) read with Rule 173G(1) and Rule 173F, Rule 52A read with Rule 173G(2) and Rule 57(4) of the Central Excise Rules, 1944 alleging that the appellants had failed to remove the waste and scrap on payments of duty. Duty evasion to the tune of Rs. 10,60,259.06 was alleged and demand for the same as payable for removal of goods between the period 2-11-1987 to 28-2-1989 was raised. In addition to pleading that the demand was barred by limitation and there was no suppression or mis-statement entitling invocation of extended period, they also pleaded that the waste and scrap was being captively consumed and was being sent out to Job-Workers for making ingots by following procedure under Rule 57F(2) of the Rules. They also referred to CBEC's Circular No. 15/86, clarifying that turning and borings of aluminium (Scrap) arising at the time of manufacture of pistons, could be allowed removal vide Rule 57F(2) and pleaded that the ratio of the same could squarely apply to them. The adjudicating authority, after granting personal hearing came to the conclusion that, waste and scrap was a new dutiable commodity that came into existence during the course of manufacture of excisable goods from lead ingots and for removal thereof, provisions of Rule 57F(4) would stand attracted and not Rule 57F(2). Holding that the duty demanded would be payable, he however dropped the said demand holding that the extended period of limitation was not available. In any case, according to him the appellants had contravened the statutory provisions and were liable to imposition of penalty and hence, passed the impugned order.

3. The department has not come in appeal against the said order. The appellants have however filed the present appeal seeking setting aside of the order of the adjudicating authority not only in relation to imposition of penalty but also in relation to holding them liable to pay the duty, the demand for which has been dropped only because of bar of limitation.

4. Mr. V. Shridharan, the ld. advocate appearing for the appellants, has submitted that there is no dispute over the issue that waste and scrap of lead ingots were liable to payment of dut