Exemption for scrap used in exempt manufacture and captive consumption upheld, with refund allowed through the Cenvat credit route.

Scrap falling under Chapter 72 and used in the manufacture of submersible pumps was covered by the relevant exemption notifications, and the portion used in making castings for eligible captive consumption also qualified for exemption. On that basis, the duty demand on the entire quantity of scrap was held unsustainable and set aside. Since duty had later been paid on the scrap, consequential refund was held to follow, and because the payment had been made through utilisation of Cenvat credit, the refund was directed through the Cenvat credit route.

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Issues: (i) Whether scrap used in the manufacture of submersible pumps and in the manufacture of castings cleared on payment of duty was eligible for exemption and whether the duty demand was sustainable; (ii) Whether the assessee was entitled to consequential refund of duty paid on the scrap and the mode of refund.

Issue (i): Whether scrap used in the manufacture of submersible pumps and in the manufacture of castings cleared on payment of duty was eligible for exemption and whether the duty demand was sustainable.

Analysis: Goods falling under Chapter 72 and used in the manufacture of submersible pumps were held to be covered by the exemption notifications for the relevant periods. The portion of scrap used in making castings was also treated as eligible for captive consumption exemption. On that basis, the entire quantity of scrap was held to qualify for exemption.

Conclusion: The duty demand on the scrap was unsustainable and was set aside in favour of the assessee.

Issue (ii): Whether the assessee was entitled to consequential refund of duty paid on the scrap and the mode of refund.

Analysis: Since the duty had been paid subsequently on the scrap, consequential refund was held to follow. As the duty amount had been discharged by utilising Cenvat credit, the refund was directed through the Cenvat credit route.

Conclusion: The assessee was entitled to consequential refund through the Cenvat credit route.

Final Conclusion: The appeal succeeded and the demand of duty was set aside, with consequential refund relief granted to the assessee.

Ratio Decidendi: Scrap used either in the manufacture of exempted goods or in captive consumption for eligible manufacture qualifies for exemption, and consequential refund follows where duty has been paid, including by the Cenvat credit route.

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