Waste and scrap duty requires proof that scrap arose from capital goods on which Modvat credit was taken.

Duty on waste and scrap under Rule 57S(2) of the Central Excise Rules, 1944 is sustainable only where the Revenue proves by evidence that the scrap actually arose from capital goods on which Modvat credit was taken. The record contained no material linking the scrap to such machinery, and the Finance Manager's answer did not establish that connection. The finding below was therefore unsupported by evidence, the duty demand could not stand, and the impugned order was set aside.

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Issues: Whether duty was payable on waste and scrap allegedly arising out of capital goods on which Modvat credit had been availed.

Analysis: Rule 57S(2) of the Central Excise Rules, 1944 authorises levy of duty where capital goods are sold as waste and scrap. However, the Revenue must establish that the waste and scrap in question in fact arose from such capital goods. The record contained no evidence proving that the scrap was generated from the machinery on which Modvat credit had been taken, and the question put to the Finance Manager, together with his answer, did not show that the scrap related to such capital goods. The finding below was therefore unsupported by material evidence.

Conclusion: The duty demand was not sustainable and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal was allowed because the Revenue failed to prove the necessary factual link between the scrap and the capital goods on which Modvat credit had been availed.

Ratio Decidendi: Where duty is sought on waste and scrap under Rule 57S(2) of the Central Excise Rules, 1944, the Revenue must prove by evidence that the scrap arose from the capital goods on which credit was taken; a finding based only on assumption cannot sustain the demand.

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