Central excise on repair scrap turns on manufacture and proof of Cenvat credit before Rule 3(5A) applies.

Waste and scrap arising during repair and maintenance of plant and machinery, including used capital goods, were discussed as attracting central excise duty only if the process amounted to manufacture; Section Note 8(a) of Section XV was treated as a tariff classification aid and not as a deeming provision under Section 2(f). The note also records that where no Cenvat credit had been taken on the original capital goods and the Department could not prove otherwise, Rule 3(5A) of the Cenvat Credit Rules, 2004 was not sustainable. On that basis, the demand and penalty were not sustainable.

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Issues: Whether waste and scrap arising during repair and maintenance of plant and machinery, including used capital goods, attracted central excise duty and whether Rule 3(5A) of the Cenvat Credit Rules, 2004 applied despite non-availment of Cenvat credit on the originally procured capital goods.

Analysis: Section Note 8(a) of Section XV of the Central Excise Tariff Act, 1985 was held to serve only the limited purpose of identifying the relevant tariff entry and applicable rate of duty, and not to deem the process as manufacture under Section 2(f) of the Central Excise Act, 1944. The Tribunal also relied on the settled position in the appellant's own earlier matter on identical facts. On the second aspect, the appellant had not taken Cenvat credit on the capital goods at the time of procurement, and that fact was placed before the authorities. In the absence of satisfactory proof by the Department that credit had in fact been availed, invocation of Rule 3(5A) was not sustainable.

Conclusion: The demand and penalty were not sustainable, and the appeal was allowed in favour of the appellant.

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