Job work scrap not dutiable on principal manufacturer absent a specific Cenvat Credit Rules provision.

Waste and scrap generated at a job worker's premises were held not to attract central excise duty on the principal manufacturer in the absence of a specific Cenvat Credit Rules provision requiring return of such scrap or deeming duty liability on the principal. The Tribunal applied its earlier view that scrap arising during manufacture is not dutiable merely because it remained with, and was sold by, the job worker. On the facts accepted, Section 3 of the Central Excise Act was not attracted, and the demand for duty, interest, and equal penalty was unsustainable.

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Issues: Whether the principal manufacturer was liable to pay central excise duty on scrap generated at the job worker's premises and not returned, under Rule 57AC(5)(a) and Rule 4(5)(a) of the Cenvat Credit Rules.

Analysis: The dispute turned on whether the statutory scheme compelled the principal manufacturer to bring back scrap generated during job work or to discharge duty on such scrap retained and sold by the job worker. The Tribunal followed its earlier view that waste and scrap arising in the course of manufacture were not dutiable in the absence of a specific provision in the Cenvat Credit Rules comparable to the erstwhile rule governing waste and scrap, and that duty could not be demanded from the principal manufacturer merely because the scrap remained with the job worker. The levy under Section 3 of the Central Excise Act, 1944 was therefore not attracted on the facts accepted in the order.

Conclusion: The demand of duty, interest, and equal penalty on the principal manufacturer for scrap generated at the job worker's end was unsustainable and the issue was decided in favour of the assessee.

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