Appellant wins as revenue fails to prove scrap originated from CENVAT-credited capital goods under Rule 3(5A)

The CESTAT Allahabad allowed the appeal regarding CENVAT Credit provisions. Revenue alleged the appellant sold scrap from capital goods without paying duty under Rule 3(5A) of CENVAT Credit Rules, 2004, but failed to produce evidence proving the scrap originated from CENVAT-credited capital goods. The tribunal held that burden of proof lies with revenue to establish contraventions of taxing statutes, not on the appellant to prove exemption. Since revenue couldn't demonstrate the scrap arose from CENVAT-credited capital goods, and lower authorities incorrectly placed burden on appellant, the proceedings were deemed without merit and the appeal was allowed.

---

---

Issues Involved:
1. Liability to pay central excise duty on waste & scrap of capital goods.
2. Burden of proof regarding the origin of waste & scrap.
3. Applicability of Rule 3(5A) of the Cenvat Credit Rules, 2004.

Summary:

1. Liability to Pay Central Excise Duty on Waste & Scrap of Capital Goods:
The appellant, engaged in the manufacture of sugar and molasses, was found to have sold scrap generated from working capital goods without paying the duty leviable on the transaction value, in contravention of Rule 3(5A) of the Cenvat Credit Rules, 2004. The Commissioner (Appeal) upheld the demand of Rs 23,41,795/- u/s 11A of the Central Excise Act, 1944, along with interest u/s 11AB and a penalty u/s 11AC read with Rule 25 of the Central Excise Rules, 2002.

2. Burden of Proof Regarding the Origin of Waste & Scrap:
The appellant contended that the waste and scrap sold were generated from capital goods on which no Cenvat credit was taken. However, they failed to provide documentary evidence to support this claim. The adjudicating authority and Commissioner (Appeal) held that the burden of proof was on the appellant to demonstrate that the scrap was from non-cenvatable capital goods. The Tribunal noted that the burden to prove the fact lies on the person who asserts it. Since the revenue asserted that the waste and scrap arose from Cenvated capital goods, it was their responsibility to establish this fact.

3. Applicability of Rule 3(5A) of the Cenvat Credit Rules, 2004:
The Tribunal examined Rule 3(5A) of the Cenvat Credit Rules, 2004, which mandates that if capital goods are cleared as waste and scrap, the manufacturer must pay an amount equal to the duty leviable on the transaction value. The Commissioner (Appeal) concluded that this rule applies only to Cenvated capital goods. The Tribunal found that the revenue did not produce evidence to prove that the waste and scrap were from Cenvated capital goods. The Tribunal cited several precedents, including the case of Karnal Co-Operative Sugar Mills Ltd., which held that the burden of proof is on the department to adduce evidence.

Conclusion:
The Tribunal allowed the appeal, stating that the revenue failed to establish that the waste and scrap were from Cenvated capital goods. The burden of proof was on the revenue to prove the contravention of Rule 3(5A) of the Cenvat Credit Rules, 2004. The Tribunal found no merit in the impugned order and allowed the appeal.

---