Job-worker scrap is not excisable in the principal manufacturer's hands; duty, interest, and penalty cannot be sustained.

Waste and scrap generated and sold at a job worker's premises cannot be subjected to central excise duty in the hands of the principal manufacturer, because duty under the Central Excise Act attaches to the person who manufactures the scrap. The job-work rule requires return of inputs or capital goods, and any non-receipt consequence is reversal of CENVAT credit, not fastening excise liability on the principal for scrap made by the job worker. The Tribunal followed the earlier view, affirmed by the High Court, that such scrap is not dutiable in the principal manufacturer's hands, so the duty demand, interest, and penalty were set aside.

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Issues: Whether waste and scrap arising at the job worker's end and sold by the job worker can be subjected to central excise duty in the hands of the principal manufacturer.

Analysis: The demand was founded on the premise that scrap generated during job work had to be returned to the principal manufacturer and, if not returned, duty became payable by the principal manufacturer. The governing rule on sending inputs to a job worker requires receipt back of the inputs or capital goods and, on non-receipt, contemplates reversal of CENVAT credit rather than fastening duty liability on the principal manufacturer for scrap generated by the job worker. Duty under the Central Excise Act is attracted on manufacture, and where the scrap is generated at the job worker's end, the principal manufacturer is not the manufacturer of that scrap. The earlier Tribunal view, affirmed by the High Court, had already held that such scrap is not dutiable in the principal manufacturer's hands.

Conclusion: The duty demand, interest, and penalty on the appellant for scrap generated and sold at the job worker's end were not sustainable and were set aside.

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