Scrap from used capital goods not automatically dutiable where no enabling credit-reversal rule existed

Waste and scrap arising from discarded used capital goods were not dutiable as excisable goods merely because the original capital goods had been used in the factory and credit had been availed on them. The Tribunal applied the principle that scrap not generated by mechanical working of metals in the factory does not become chargeable to duty on mere clearance, and it noted that the relevant period contained no provision equivalent to the later credit-reversal rule. On that basis, the article states that duty could not be demanded on the scrap clearance and the demand was unsustainable.

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Issues: Whether waste and scrap arising from discarded used capital goods were dutiable as excisable goods and whether, in the absence of a corresponding provision during the relevant period, duty could be demanded on their clearance.

Analysis: The discarded capital goods had been used in the factory and were later sold as waste and scrap. The authorities below proceeded on the footing that such clearance amounted to manufacture of excisable goods, relying on tariff entries and marketability. The Tribunal found that the case was covered by the principle that scrap from old and used capital goods, not arising from mechanical working of metals in the factory, does not become dutiable merely because the assessee had availed credit on the original capital goods. It also noted that the relevant period did not contain a provision analogous to the later credit-reversal rule.

Conclusion: The waste and scrap was not chargeable to excise duty on the facts of the case, and the demand was unsustainable.

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