Fabrication scrap is not excisable when no manufacture occurs; duty demand on refinery waste and scrap was unsustainable.

Waste and scrap generated incidentally during fabrication of plant and machinery and civil construction work in a refinery was not liable to central excise duty merely because it arose in the process. The applicable principle was that such fabrication activity did not amount to manufacture, and the scrap therefore remained non-excisable; reliance on the earlier Rajasthan High Court view could not sustain the demand after its reversal by the Supreme Court. It was also noted that cenvat credit had not been availed on the inputs concerned, and the duty demand was unsustainable.

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Issues: Whether waste and scrap generated during fabrication of capital goods and civil work in a refinery was liable to central excise duty under Note 8A of Section XV of the Central Excise Tariff Act, 1985.

Analysis: The scrap arose incidentally from fabrication of plant and machinery and from civil construction work. The controlling legal position applied was that such fabrication activity does not amount to manufacture, and therefore the resultant waste and scrap is not excisable merely because it is generated during the process. The earlier reliance on the Rajasthan High Court decision could not sustain the demand after the Supreme Court had reversed that view. On the facts, the appellant was also found not to have availed cenvat credit on the inputs in question.

Conclusion: The demand of duty was unsustainable and the appellant was not liable to pay duty.

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