Dutiability of scrap from inputs and repair work upheld where exemption was not proved and metal working produced waste scrap.

Waste and scrap cleared before 1-4-2000 were treated as dutiable where the assessee could not prove that no credit had been taken on the inputs or capital goods, because the burden to establish the exception from duty lay on the assessee; the extended period and penalty were therefore sustained. M.S. waste and scrap generated during repair and maintenance by cutting plates, sheets, angles and channels was also held dutiable, since such cutting amounted to mechanical working of metal and the resulting scrap fell within the tariff definition of metal waste and scrap. The duty demand on both categories of scrap, along with penalty, was upheld.

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Issues: (i) Whether waste and scrap of inputs and capital goods cleared prior to 1-4-2000 were liable to duty and whether invocation of the extended period and penalty was justified. (ii) Whether M.S. waste and scrap generated during repair and maintenance by cutting and working of plates, sheets and angles was dutiable as metal waste and scrap.

Issue (i): Whether waste and scrap of inputs and capital goods cleared prior to 1-4-2000 were liable to duty and whether invocation of the extended period and penalty was justified.

Analysis: For the period before 1-4-2000, Rule 57F(18) required waste arising from processed inputs, where credit had been taken, to be removed on payment of duty, and Rule 57S(2)(c) required duty on capital goods sold as waste and scrap. The assessee claimed that the clearances related to inputs and capital goods on which no credit had been taken, but failed to produce supporting material despite being required to do so during investigation and before the lower authorities. The burden to establish entitlement to the exception from duty lay on the assessee. In the absence of evidence, the clearances could not be treated as duty-free, and the demand with extended period and penalty was sustainable.

Conclusion: The waste and scrap cleared prior to 1-4-2000 were dutiable, and the extended period and penalty were rightly invoked.

Issue (ii): Whether M.S. waste and scrap generated during repair and maintenance by cutting and working of plates, sheets and angles was dutiable as metal waste and scrap.

Analysis: For the later period, the Tribunal noted that although duty was not demanded on waste and scrap arising merely from wear and tear of capital goods, the disputed scrap was generated from cutting of metal plates, sheets, angles and channels for making parts used in repair and maintenance. Such activity amounted to mechanical working of metal and fell within the definition of metal waste and scrap under Section Note 8(a) to Section XV of the Central Excise Tariff Act, 1985. The reasoning in the Rajasthan High Court decision in Grasim Industries, read with the statutory definition of manufacture, supported the view that scrap arising in the process of manufacturing replacement parts in the factory was dutiable.

Conclusion: The M.S. waste and scrap generated during repair and maintenance was dutiable.

Final Conclusion: The demand of duty on both categories of scrap, together with penalty, was upheld and the appeal failed.

Ratio Decidendi: Where waste or scrap is cleared under provisions requiring duty, the assessee bears the burden of proving that the clearances fall within an exception; further, metal scrap arising from mechanical working of metal in the manufacture of repair or replacement parts is dutiable as waste and scrap.

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