Excisability and Rule 3(5A) limits bar duty demand on waste and scrap cleared before the amendment.

CESTAT held that no duty or equivalent amount was payable on clearance of waste and scrap from capital goods cleared before insertion of Rule 3(5A) of the Cenvat Credit Rules, 2004. The department had alleged both that the goods were excisable and, alternatively, that Rule 3(5A) applied because credit had been taken on the capital goods. The tribunal found no evidence to prove manufacture of excisable goods, and the burden to establish excisability remained on the department. It also held that Rule 3(5A), introduced on 16-5-2005, did not deem waste and scrap to be manufactured goods and could not sustain the demand on the facts.

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Issues: Whether duty or an amount under Rule 3(5A) of the Cenvat Credit Rules, 2004 was payable on clearance of waste and scrap said to have arisen from capital goods cleared prior to 16-5-2005, and whether the department had proved that the goods cleared were excisable goods.

Analysis: The demand rested on two overlapping allegations, namely that the cleared items were excisable goods and that they arose from capital goods on which credit had been taken. No evidence was adduced to establish manufacture of excisable goods, and the burden to prove excisability lay on the department. As to the alternative basis, Rule 3(5A) was introduced only on 16-5-2005 and provides for payment when capital goods are cleared as waste and scrap. The provision does not deem such waste and scrap to be manufactured goods, and on the facts the clearances were treated as having occurred before the amendment.

Conclusion: No duty or amount under Rule 3(5A) of the Cenvat Credit Rules, 2004 was payable, and the demand was unsustainable.

Ratio Decidendi: In the absence of evidence proving excisable manufacture, and for clearances of capital goods as waste and scrap made before insertion of Rule 3(5A), no duty or equivalent amount can be demanded under that rule.

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