Modvat credit and scrap clearance: demand fails where no finding showed credit was taken on the original capital goods.

Duty on clearance of scrap generated from old capital goods could not be sustained under Rule 57S(2)(c) where there was no finding that Modvat credit had been taken on the original capital goods. The demand rested on an assumption that the scrap arose from capital goods on which credit had been availed, but neither the adjudicating authority nor the appellate authority verified the origin of the scrap or recorded the necessary factual finding. In the absence of that foundational basis, the rule could not be applied. A remand was considered, but the long lapse of time made fresh evidence unlikely; the demand and consequential order were therefore set aside.

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Issues: Whether duty could be demanded on clearance of scrap generated from old capital goods under Rule 57S(2)(c) of the Central Excise Rules, 1944, when there was no finding that Modvat credit had been taken on the original capital goods.

Analysis: The demand was based on the premise that the scrap arose from capital goods on which Modvat credit had been availed. However, neither the adjudicating authority nor the appellate authority examined the origin of the scrap or recorded a finding that credit had in fact been taken on the capital goods sold as scrap. In the absence of such a finding, the applicability of Rule 57S(2)(c) could not be sustained. Though a remand for fresh adjudication was considered, the long lapse of time since the relevant period made availability of evidence unlikely.

Conclusion: The duty demand and consequential order were not sustainable, and the appeal was allowed in favour of the assessee.

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