Scrap from worn-out or dismantled capital goods is not manufacture and is not liable to central excise duty.

Scrap arising from worn-out or dismantled capital goods and inputs is not treated as a manufactured product unless a new and distinct commodity emerges from a manufacturing process. Mere wear and tear or dismantling does not amount to manufacture, so such scrap is not exigible to central excise duty. On that basis, the related liability to interest and penalty is also unsustainable where the underlying duty demand fails.

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Issues: Whether waste and scrap arising from worn-out or dismantled capital goods and inputs could be treated as manufactured goods exigible to central excise duty, with consequent liability to interest and penalty.

Analysis: The goods in question were scrap generated from worn-out capital goods and inputs, not a new and distinct product emerging from a manufacturing process. Dismantled machinery or worn-out inputs do not, by themselves, become manufactured goods merely because scrap results from wear and tear or dismantling. The demand for duty, interest and penalty could not therefore be sustained.

Conclusion: The issue was decided in favour of the assessee. The scrap was not liable to be treated as manufactured goods, and the duty, interest and penalty were held unsustainable.

Ratio Decidendi: Scrap arising only from wear and tear or dismantling of capital goods or inputs is not, without more, the result of manufacture and is not exigible to excise duty as a manufactured product.

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