Duty on scrap from used capital goods fails where no Modvat credit was taken and the factual basis is unproved.

Duty on clearance of scrap arising from old, broken and unserviceable parts of capital goods was found unsustainable where no Modvat credit had been taken on the goods. The revenue relied on Rule 57S(2)(C) of the Central Excise Rules on the footing that the scrap represented old and used parts of capital goods, but that factual basis was not controverted. In the absence of credit having been taken, the necessary foundation to fasten duty was missing, and the demand was rejected in favour of the assessee.

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Issues: Whether duty was payable on clearance of scrap arising from old and used parts of capital goods when no credit had been taken on those goods.

Analysis: The appellant's case was that the M.S. heavy scrap consisted of leftover building material and that the aluminium scrap arose from old, broken and unserviceable parts of separators, with no Modvat credit having been taken. That factual position was not controverted by the revenue. Rule 57S(2)(C) of the Central Excise Rules was invoked by the revenue on the footing that the scrap represented old and used parts of capital goods, but the factual foundation necessary to fasten duty was absent where no credit had been taken.

Conclusion: The demand was not sustainable and the issue was decided in favour of the assessee.

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