MODVAT treatment of empty drums: once contents were removed, duty applied as scrap, not as goods cleared as such.

Empty metal drums removed after the Calcium Carbide was taken out could not be treated as inputs cleared out as such under the MODVAT scheme, because they were not removed in the same condition in which they were received. Once the contents were extracted and only the empty drums were sold, the removal was treated as akin to scrap arising in the course of manufacture. Duty was therefore payable on the drums as scrap, rather than as goods cleared as such, with the result adverse to the assessee.

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Issues: Whether empty metal drums removed from the factory after the Calcium Carbide was taken out could be treated as goods cleared as such, or as scrap arising in the course of manufacture, and what duty consequence followed.

Analysis: The MODVAT scheme permits inputs brought into the factory to be used in manufacture or cleared out as such, in which case duty attaches to the goods as removed. The drums in question were not removed in the same condition in which they were received, since the Calcium Carbide was taken out and only the empty drums were sold. On that basis, they could not be treated as goods cleared as such under the relevant MODVAT provision. The removal of the empty drums after use of the contents was treated as a situation akin to scrap arising in the preparatory stage of manufacture.

Conclusion: The empty drums were liable to be treated as scrap, and duty was payable on that basis, not as on goods cleared as such. The conclusion was against the assessee.

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