Modvat credit and excise duty on construction scrap: scrap from duty-paid steel was held non-dutiable absent credit availed

Iron and steel scrap generated during factory construction was not liable to central excise duty where no Modvat credit had been taken on the duty-paid steel material used. Liability on such waste and scrap depended on prior availment of credit as input or capital goods, and in the absence of any evidence or finding that credit had been claimed, mere generation of scrap during construction did not attract duty. The demand was therefore unsustainable.

---

---

Issues: Whether iron and steel scrap generated during construction of the factory was liable to central excise duty when no Modvat credit had been taken on the duty-paid steel material.

Analysis: Liability to duty on waste and scrap arising from steel material used in construction depended on whether credit had been availed on that material under the Modvat scheme, either as input or as capital goods. The record disclosed no evidence that such credit had been taken, and no finding in the adjudication order established that the Department had derived any contrary conclusion from the Modvat records. In the absence of credit being taken, the mere generation of scrap during construction did not attract duty under the cited excise provisions.

Conclusion: The scrap was not liable to excise duty and the demand could not be sustained.

Ratio Decidendi: Where duty-paid steel used in construction does not suffer Modvat credit, scrap generated from that material is not dutiable merely because it arises during the construction process.

---