Excise duty on waste and scrap requires proof of excisable manufacture and credit-linked origin before demand can stand.

Excise duty on waste and scrap was stated to be unsustainable where the Department could not establish with cogent evidence that the scrap arose from capital goods or inputs on which credit had been taken. The cited Central Excise Rules and Section 11A were described as insufficient to confirm demand on a presumptive basis, because waste and scrap are not liable to duty unless shown to be excisable goods manufactured in the manner required by law. As the demand failed, the related allegation of suppression also fell, and the consequential interest and penalty could not survive.

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Issues: Whether duty demand, interest and penalty were sustainable on clearance of waste and scrap arising from capital goods and inputs, and whether the recovery could be supported under the cited Central Excise Rules and Section 11A.

Analysis: The duty demand could not be sustained because the record did not establish, by cogent evidence, that the scrap had arisen from capital goods or inputs on which credit had been availed, and presumptive recovery was not permissible. Waste and scrap are not chargeable to duty unless they are shown to be excisable goods produced or manufactured in the manner required by law. The provisions relied on were held to operate, at best, for reversal or recovery of credit in the appropriate modvat framework and not as an independent basis for confirming the demand as made. Once the demand itself failed, the connected allegation of suppression and the consequential penalty and interest also could not stand. The proceedings were therefore held unsustainable.

Conclusion: The duty demand, interest and penalty were set aside, and the appeal succeeded in favour of the assessee.

Ratio Decidendi: Excise duty on waste and scrap cannot be sustained on assumption or deeming fiction unless the Department proves, with evidence, that the goods are excisable and arose from credit-bearing capital goods or inputs in the manner required by the applicable law; consequential interest and penalty fall with the demand.

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