Scrap from machinery repair is not dutiable as manufactured scrap when it does not arise from manufacturing activity.

Scrap generated from wear and tear or repair of machinery installed in a factory is not treated as manufactured scrap under Chapter 72, Heading 72.04 when it does not arise from any manufacturing activity. The tariff provision relied upon was confined to scrap generated in the course of manufacture, and the fact that no credit had been availed on the machinery further weakened the basis for duty. On that reasoning, the duty demand and penalty were unsustainable, and consequential relief followed.

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Issues: Whether scrap arising from wear and tear and repair of machinery installed in the factory was dutiable under Chapter 72, Heading 72.04, and whether the resulting duty demand and penalty could be sustained.

Analysis: The scrap in question arose during wear and tear of machinery and not from any manufacturing activity. The cited tariff heading applied to scrap generated in the course of manufacture, whereas the present scrap was only incidental to repair of capital goods. Since no credit had been availed on the machinery, the basis for demanding duty on the scrap was not legally sustainable.

Conclusion: The duty demand and penalty were held unsustainable and the appeals were allowed.

Final Conclusion: The assessee succeeded on the core issue of excisability of the scrap, and the impugned order was set aside with consequential relief.

Ratio Decidendi: Scrap arising merely from wear and tear or repair of machinery, and not from manufacturing activity, is not dutiable under the tariff provision relied upon for manufactured scrap.

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