Duty on waste and scrap requires proof of nexus with capital goods on which Modvat credit was taken

Duty on waste and scrap of capital goods under Rule 57S(2)(c) arises only where the scrap is shown to have resulted from capital goods on which Modvat credit was availed. The record contained no material establishing that factual nexus, and in a demand proceeding the burden remained on the Revenue to prove excisability and dutiability. On that basis, the duty demand and penalty on the disputed scrap were not sustainable.

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Issues: Whether waste and scrap arising from removal of capital goods was dutiable when the Revenue failed to establish that the scrap was generated from capital goods on which Modvat credit had been taken.

Analysis: Rule 57S(2)(c) fastens duty on waste and scrap of capital goods in respect of which Modvat credit has been availed. The record, however, contained no material to show that the scrap in question had arisen from such capital goods. In a demand case, the burden lay on the Revenue to prove the excisability and dutiability of the goods on which duty was sought.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The duty demand and penalty on the disputed waste and scrap could not be sustained for want of proof connecting the scrap with capital goods on which Modvat credit had been taken.

Ratio Decidendi: In proceedings for duty on waste and scrap of capital goods, the Revenue must prove the requisite factual nexus with capital goods on which credit was availed; absent such proof, the demand fails.

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