Duty on scrap from job work fails where scrap is treated as a final product and clearance as principal's sale is rejected.

Duty was not chargeable on scrap generated during job work at the assessee's premises where the earlier departmental provisions had ceased to operate and the applicable provision dealt with utilisation of credit in relation to final products. Scrap arising in the course of manufacture was treated as a final product, and the job worker was not to be distinguished from a manufacturer of waste merely because the raw material belonged to the principal supplier. The contention that clearance of scrap should be treated as clearance on behalf of the principal supplier was rejected, so the duty demand and accompanying penalties were set aside.

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Issues: Whether duty could be demanded on scrap arising during job work at the assessee's premises and whether penalty was sustainable.

Analysis: The dispute concerned scrap generated from raw materials received for job work. The earlier provisions relied upon by the department were no longer in force, and the applicable provision specifically covered utilisation of credit in relation to final products. Scrap generated in the course of manufacture was treated as a final product and, on the facts, the job worker could not be differentiated from a manufacturer of waste merely because the raw material belonged to the principal supplier. The premise that clearance of scrap had to be treated as clearance on behalf of the principal supplier was rejected, and the basis for duty demand and penalty was not made out.

Conclusion: The demand of duty and the penalties were set aside.

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