Scrap from worn-out capital goods was not removal "as such," so no duty or penalty arose before the 2005 amendment.

Worn-out and discarded machinery parts cleared as scrap before 16-5-2005 were not treated as capital goods removed "as such" under Rule 3(4) of the Cenvat Credit Rules, 2001, because liability under that rule applied only to removal of inputs or capital goods in their original form. The Tribunal noted that a specific levy on capital goods cleared as waste and scrap on transaction value was introduced only by Rule 3(5)(a) of the Cenvat Credit Rules, 2004 with effect from 16-5-2005. For the relevant period, no duty, interest or penalty could be demanded on such scrap clearance.

---

---

Issues: Whether worn-out and discarded machinery parts cleared as scrap prior to 16-5-2005 could be treated as capital goods cleared "as such" so as to attract duty, reversal of credit, interest and penalty.

Analysis: Under Rule 3(4) of the Cenvat Credit Rules, 2001, liability arose only when inputs or capital goods were removed "as such". The Tribunal held that discarded machinery parts, after exhaustion of utility through wear and tear, could not be equated with capital goods removed "as such". It further noted that a specific provision making capital goods cleared as waste and scrap liable to duty on transaction value was inserted only by Rule 3(5)(a) of the Cenvat Credit Rules, 2004 with effect from 16-5-2005, and that no such liability existed for the relevant period.

Conclusion: No duty was payable on the scrap cleared from worn-out capital goods for the relevant period, and the demand of duty, interest and penalty could not be sustained.

---