Excise duty on scrap and used goods requires a valid basis; demands on factory-cleared scrap and containers were set aside.

Scrap and used materials cleared from a factory are not liable to excise duty merely because they leave the premises; levy requires a legally sustainable basis for treating them as excisable goods. On the facts, M.S. scrap from old machinery, aluminium and copper scrap from old fittings, used grinding wheels, and empty M.S. drums and plastic containers were all held not dutiable. Once the duty demands failed, the consequential penalty also could not survive and was set aside. The assessee obtained complete relief.

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Issues: (i) Whether M.S. scrap arising from cutting old machinery items was liable to central excise duty; (ii) Whether aluminium and copper scrap cleared from the factory was dutiable; (iii) Whether used grinding wheels were liable to duty on removal; (iv) Whether M.S. drums and plastic containers cleared from the factory attracted duty; and (v) Whether penalty could survive once the duty demands failed.

Issue (i): Whether M.S. scrap arising from cutting old machinery items was liable to central excise duty.

Analysis: Dutiability of scrap arises only where it emerges from the skilful manipulation of raw material. Scrap generated from cutting old machinery items is not treated as manufactured scrap in the absence of evidence that the machinery was capital goods on which credit had been taken, or that any duty-related recovery was otherwise warranted.

Conclusion: The demand on M.S. scrap was not sustainable and was in favour of the assessee.

Issue (ii): Whether aluminium and copper scrap cleared from the factory was dutiable.

Analysis: The record showed the goods were described in the clearance documents as scrap of copper cable and scrap of aluminium cable recovered from old and used fittings and electrical installations. In the absence of evidence rebutting that description, duty could not be demanded merely on an assumption that the scrap arose from machining activity.

Conclusion: The demand on aluminium and copper scrap was not sustainable and was in favour of the assessee.

Issue (iii): Whether used grinding wheels were liable to duty on removal.

Analysis: Used grinding wheels, though no longer usable by the assessee, were not shown to have been cleared as dutiable manufactured goods. Where evidence of credit availed on duty-paid inputs or comparable basis for levy was absent, duty could not be imposed on such used articles.

Conclusion: The demand on used grinding wheels was not sustainable and was in favour of the assessee.

Issue (iv): Whether M.S. drums and plastic containers cleared from the factory attracted duty.

Analysis: The removal of empty M.S. drums and plastic containers from the factory did not by itself establish emergence of a dutiable excisable product. On the facts, the demand could not be sustained.

Conclusion: The demand on M.S. drums and plastic containers was not sustainable and was in favour of the assessee.

Issue (v): Whether penalty could survive once the duty demands failed.

Analysis: With the underlying duty demands set aside, there remained no basis to sustain the penalty.

Conclusion: The penalty was also set aside and was in favour of the assessee.

Final Conclusion: All the disputed duty demands and the consequential penalty were vacated, leaving the assessee with complete relief in the appeal.

Ratio Decidendi: Scrap or used goods are not liable to excise duty merely because they are cleared from the factory; levy requires a legally sustainable basis for treating them as excisable goods, and penalty cannot survive once the duty demand fails.

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