Exemption for factory waste and scrap upheld where scrap from wagon manufacture was recycled and duty was proportionately paid on dutiable clearances.

Waste and scrap generated during manufacture of railway wagons from duty-paid iron and steel products was treated as eligible for exemption under Notification No. 89/95-C.E. because the scrap was wholly recycled within the factory for further manufacture. The mere fact that a small portion of the wagons was cleared on payment of duty did not defeat the exemption, as duty was stated to have been proportionately discharged to the extent the scrap related to dutiable clearances. On that basis, the denial of exemption was considered unsustainable.

---

---

Issues: Whether waste and scrap generated in the manufacture of railway wagons was eligible for exemption under Notification No. 89/95-C.E. when part of the wagons manufactured were cleared on payment of duty.

Analysis: The scrap arose during manufacture of wagons from duty-paid iron and steel products and was entirely recycled within the factory for further manufacture. The Revenue's objection was based on the fact that a small portion of the wagons was cleared on payment of duty. The Tribunal accepted the assessee's position that, to the extent the waste and scrap related to dutiable clearances, duty had been proportionately discharged, and no contrary argument was advanced at final hearing to dislodge the earlier prima facie view.

Conclusion: The waste and scrap qualified for the benefit of the exemption notification, and the denial of exemption was not sustainable.

---