No duty on scrap from worn-out capital goods where retrospective application of the amended rule was rejected.

Duty on scrap cleared from worn-out capital goods was held not to apply for the 2003-04 period because Rule 3(5A) of the Cenvat Credit Rules, 2004 was inserted only by Notification No. 27/2005 with effect from 16.05.2005 and could not operate retrospectively. The scrap arose from capital goods used in sugar and molasses manufacture, not from manufacture or mechanical working of metals, so Note 8(a) of Section XV of the Central Excise Tariff Act, 1985 did not fit the facts. The Tribunal's order was therefore affirmed and the Revenue's challenge failed.

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Issues: Whether duty was payable on scrap generated from worn-out capital goods cleared by the assessee, and whether the amended provision inserting liability on clearance of capital goods as waste or scrap applied to the relevant period.

Analysis: The relevant clearance period was 2003-04. The provision introducing duty liability on capital goods cleared as waste or scrap under Rule 3(5A) of the Cenvat Credit Rules, 2004 was inserted only by Notification No. 27/2005 with effect from 16.05.2005, and therefore had no application to the disputed period. The scrap in question arose from worn-out parts of capital goods used in the manufacture of sugar and molasses, and not from manufacture of iron and steel goods. Note 8(a) of Section XV of the Central Excise Tariff Act, 1985 contemplates waste and scrap arising from manufacture or mechanical working of metals and metal goods, which did not match the facts found.

Conclusion: Duty was not payable on the scrap cleared during the relevant period, and the Revenue's challenge failed.

Final Conclusion: The order of the Tribunal was affirmed and the Revenue's appeal was rejected.

Ratio Decidendi: A provision imposing duty on capital goods cleared as waste or scrap cannot be applied retrospectively to a prior period, and scrap arising from worn-out capital goods not produced through manufacture or mechanical working of metals does not attract duty under the tariff entry relied upon.

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