This document provides background information and rationale for proposed modifications to an excise duty exemption notification regarding waste and scrap. It notes that the current notification allows full exemption for waste/scrap generated during manufacture of exempted goods, even when intermediate goods used in dutiable final products are exempted. This could allow some unintended benefits. The proposed modification is to provide exemption only when the entire factory's production is exempted, not just intermediate goods. Extracts from the Finance Minister's budget speech support exempting waste/scrap only when the factory itself is fully exempted from excise control.

1. F.No.35713412012-TRU
Government of India
Ministry of Finance
Department of Revenue
(Tax Research Unit)
*****
Room No. 146-G,North Block
New Delhi, the 13'~February, 2012
Shri Vikas Mehta,
A - 312 Shivalik,
Near Malviya Nagar,
New Delhi - 110017
Subject: Request for informationunder RTI- Act
Please refer to your application dated 2710112012 which was originallyreceived by RTI(Cel1)
and subsequentlyforwarded to the undersigned(2910112012).
2. The information sought by you is as under:-
(a) Please refer to the Notification No. 89195-CEdt 1810511995
(b) In connection with the above, you are requested to provide the following
' information and documents, viz:-
(i) The purpose and rationale behind issuance of the said notification
(ii) The meaning ascribed to the tern "waste" in the said notification
(iii) All background papers, records, documents etc. and file noting relating to and
concerningthe said notification
(c) You are further requested to allow the Applicant to inspect the file as maintained
by the Excise Department in relation to the said notification no. 89/95 - CE dt
18/05/1995and take notes, extracts or certified copies of the docurnents.
In this regard,the required information is h i s h e d as under:-
For S1. No.(b)(i), (b)(ii) &(b)(iii) above, the relevant pages(1-9) of the file noting which led to
issuance of the NotificationNo. 89/95- CE dt 18/05/1995is enclosed which is self-explanatory.
For S1. No.(c), this ofice may be visited on any of the following dates 2ndor 9thor 16" of April,
Santosh Kurnarvdtsa'
CPIO
Appellate authority in the case is Ms Limatula Yaden, Director (TRU), Room No.146-J, North
Block, Department Of Revenue, Ministry of Finance.

3. F.No.B18/3/95-TRLI
Preceding notes may kindly be seen.
'i 2' In this file, we are proposing some modif.icatidn
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in the schem,e of exemption for waste and scrap. It may
I be recalled that in this budget, waste an'd scrap have
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7 - 3 1 ~ ~i been exempted from excise duty, if they are generated
"/c) j during the process of manufacture of exempted goods.
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j The -rationale was that as the units are exempted from
( excise control in relation to the main products made by
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them, it is not logical to bring them under excise
control only for the purpose of charging duty on such' .--
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1 waste and scrip.
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p+? i(7 G 3. Our intention thus, was to exempt waste and scrap
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c:,t.>a- 5b-i~ arising in a unit which is exempted from excise duty.
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But, it is quite possible that in the process of
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6 ,.": ! manufacture of such final products, intermediate
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! products also come into existence, and waste and scrap
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may arise at each oT the intermediate ' stage. The
-' notification as it stands, allows ex~emptionfrom excise
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duty to waste and scrap generated during the
manufacture o f exempted goods without making any-
distinction, whether such goods are final products or. . .
..: .':,.
ermediate pr-oducts. Consequently, a unit which is
ufacturing dutiable goods, are also in a position to
im the benefit of this exemption in respect of waste
scrap, which may arise in the man.ufacture of
termediate goods which are finally used in'dutiable
ods. The reason is that in the case of duti.able
ods, all intermediate goods are exempted from excise
duty. Such units are in.any way, under excise control
d t:here is no requirement of giving them any
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. .,:-
l .<.fey:
' .. -;.r> ><,.Z(

4. exemption in respect of waste and scrap which arise in
their factory.
4. Besides, even units availing of the small scale
exemption scheme under a value or quantity based
exemption notification, would b e eligible for the
e:;emption from excise dirty on was'te and scrap. In their
case, %he clearance value of Rs.30 lakhs should be
adequate to take care of clearance of any waste and
scrap. Allowing the exemption to waste and scrap under
the general notification, may enable the small scale
_/_A-''
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) units to clear the bulk of-the products as waste and
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! scrap, the vaiue of which will not be included in I
1i: determining the clearance limits, in view of the
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provision of excluding the clearance of exempted goods
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' f ~ rdetermining the exemption limits of a small scale
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i unit.
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In the budget speech of F.M, the intention was
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; basically in the conte:tt of a factory which is outside
g -.% 1;,--
,;t .- 1 e:xcise control.. It was not meant for a product based
i
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i e:.:emp'L-ion. To tl-rat extent, our notif icakion does not
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fully reflect the intention but may be giving some
unintended bewefit. For instance, in the case of
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/ integrated textile units, the manufacturers may get
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j away w i t h full exemption from extise duty on wastes
1i because in -their case, .the final product% namely
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j fabrics, are exempted from basic excise duty.
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t .
6. It is thus proposed to provide that the exemption
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i from waste and scrap will apply only if the factory isf
! n o t producing only exempted goads.
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6. exempted g o o d s . T h i s s h o u l d h e l p a
l a r g e number of u n i t s i n t h e small s c a l e
s e c t o r . l1
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The above i n t e n t i o n , however, h a s n o t
b e e n q u i t e w e l l r e f l e c t e d i n N o t i f i c a t i o n
No.23/95-CE. W e have g i v e n more t h a n what was
i n t e n d e d . The p r o p o s a l now i s t o amend i t t o
b r i n g i t a t p a r with t h e i n t e n t i o n .
The n e t e f f e c t w i l l be as follows:+
I f both final and i.g.te.mediate products
are exempted, then' waste and scrap a r e
also t o be exempted.
But i f any of the above products pays
duty, .then ,waste and scrap also w i l l pay
duty.
The SSI does n o t g e t t h i s exemption, but
i t g e t s Rs.30 l a k h s e,xemption under t h e 'general
SSI exemption.
For approval.
( S . Mukhopadhyay)
Member (Budget)
April 2 8 , 1995

7. F.No.B18/3/95-THU
R e f e r p r e c e d i n g n o t e s .
2. ,In t h i s f i l e , w e a r e p r o p o s i n g some m o d i f i c a t i o n s
i n t h e scheme o f e:+emption from e x c i s e d u t y on i,Jaste
and SCT-ap , which a r i s e d u r i n g a n y manuf a c t u r i n y
r>.rSocess. I t may b e r e c a l l e d . t h a t i n t h i s b u d g e t , w a s t e
and s c r a p h a v e been tempted from e x c i s e d u t y , i f t h e y
a r e , g e n e r a t e d d u r i n g t h e p r o c e s s o f manufactu.rei:of
exempted g o o d s . The r a t i o n a l e was t h a t a 5 t h e u n i t s a r e
e:cemp$ed from e x c i s e c o n t r o l i n r e l a t i o n .to t h e main
p r o d u c t s made by them, i t is n o t 1oq-i-ckii t o b r i n g them
under e x c i s e c o n t r o l o n l y f a r . t h e p u r p o s e o f c h a r g i n g
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d u t y on such w a s t e aiqd s c r d p .
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A . Pn t h i s c o n t e x t , e x t r a c t s o f F u l l ' s Budget S p e e c h
( p a g e 1062 a r e r e p r o d u c e d below:
" I t d a e s n o t seem v e r y l o g i c a l t o b r i n g t h e s e
u n i t s u n d e r t h e e x c i s e c o n t r o l o n l y f o r t h e
p u r p o s e o f c h a r g i n g duky on 5 ~ 1 ~ 1 7w a s t e and s c r a p .
I am t h u s p r o p o s i n g t o f u l l y exempt w a s t e and
s c r a p which a ~ i s ei n t h e m a n u f a c t u r e a f exempted
qonds. T h i s s h o u l d h e l p a l a r g e number o f u n i t s
i n t h e s m a l i s c a l e s e c t o r " .
4.. O u r i n t e n t i o n & t h u s t;a exempt t h e ~ a s t e9 ,
s c r a p a r i s i n q a_ u n i t rnrhich j.s otherwise- f u l l y ' exempt
e x c i s e-
r-
3 . We had act2ordj.ngly i s s u e d a n e s e m p t i a n
n o k i f i c a t i p n No. 23/95-CE .as p a r t o t h e budye't
c h a n y e s . T h i s n n t i f i c a k i a n e x e m p t s w a s t e , p a i r i n g s and
s c r a p a r i s i n g i n t h e c o u r s e o f m a n ~ t f a ~ t u r eo f
"e:ce-mpted" g o o d s . Some C o l l e c t o r s h a v e now p o i n t e d o u t
t h a t i n s e v e r a l c a s e s i n t e r m e d i a t e g o o d s u s e d . f a r
c a p t i v e consump'tiun a r e . "exempted" t'hough t h e f i n a l
g o o d s a r e d u t i a b l e . They h a v e r e p o r t e d t h a t w a s t e and
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s c r a p is genr-.ra$ed.c i n t h e course o f m a n u f a c t u r e of