Non-dutiability of capital goods scrap: wear-and-tear waste is not manufactured goods, and Cenvat reversal was not required.

Waste and scrap arising merely from wear and tear of capital goods, or from their dismantling, was held not to be manufactured goods under Section 2(f) of the Central Excise Act, 1944, and therefore not exigible to central excise duty. Rule 3(4) of the Cenvat Credit Rules, 2000/2001 applied only where inputs or capital goods as such were removed and did not create a duty liability for scrap generated during use of capital goods. In the absence of a specific charging provision covering such scrap, no reversal of credit or payment of duty was required under the Cenvat Credit framework, and the Revenue's demand could not be sustained.

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Issues: Whether waste and scrap arising from wear and tear of capital goods, cleared without payment of duty, was liable to central excise duty and whether Rule 3(4) of the Cenvat Credit Rules, 2001 required reversal of credit or payment of duty on such scrap.

Analysis: The clearance of the scrap was from the period governed by the Cenvat Credit Rules, 2000/2001. Rule 3(4) applied only where inputs or capital goods as such were removed and required reversal of credit or payment of duty in that situation; it did not provide for duty on waste and scrap of capital goods. The scrap arose only from wear and tear during use of the capital goods and was not manufactured goods within Section 2(f) of the Central Excise Act, 1944. The dismantling of capital goods and the waste arising therefrom also did not amount to manufacture. The conclusion was supported by the cited decisions on non-dutiability of such scrap.

Conclusion: The waste and scrap of capital goods were not dutiable, and the Revenue's demand could not be sustained; the assessee succeeded.

Ratio Decidendi: Scrap arising merely from wear and tear or dismantling of capital goods is not manufactured goods, and in the absence of a specific charging provision, such scrap is not exigible to duty under the Cenvat Credit framework.

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