Dismantling used capital goods does not by itself create excisable scrap or justify duty and penalties.

Scrap generated merely by dismantling used capital goods was not treated as excisable manufacture unless the process produced a distinct manufactured commodity attracting duty. The record also noted no positive evidence that credit had been availed on the capital goods, and that factual finding was not rebutted. On that basis, the duty demand on the scrap was held unsustainable, and the related penalties were reduced accordingly.

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Issues: Whether waste and scrap generated by dismantling used capital goods was excisable and liable to duty; and whether the consequential penalties were sustainable.

Analysis: The duty demand rested on the premise that scrap arising from dismantling of used capital goods amounted to manufacture and that duty was payable under the relevant Modvat/Cenvat related provisions. The factual finding of the appellate authority that there was no positive evidence that credit had been availed on the capital goods in question was not rebutted. Dismantling of capital goods, by itself, was held not to bring about manufacture of a distinct excisable commodity. Since the scrap was not established to be manufactured and no duty was leviable on that basis, the corresponding penalty reduction was also justified.

Conclusion: The demand of duty on the scrap was not sustainable, and the penalties were liable to be reduced accordingly.

Ratio Decidendi: Scrap arising merely from dismantling used capital goods does not become excisable manufacture in the absence of proof that the process results in a manufactured product attracting duty.

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