Verification of scrap origin required before confirming excise duty demand on material said to arise from Modvat credit capital goods.

Duty on scrap allegedly arising from capital goods on which Modvat credit had been taken under Rule 57Q could not be confirmed without first verifying the scrap's actual nature and origin. The record did not support an assumption that capital goods acquired in March 1994 would have been reduced to scrap within a short period, and the adjudicating authority had not properly examined whether the demand was sustainable on the factual basis of the waste and scrap found in the factory. The matter therefore required fresh factual scrutiny, and the order was set aside with remand to the Commissioner for verification of the type and nature of the waste and scrap.

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Issues: Whether duty could be confirmed on scrap said to have arisen from capital goods on which Modvat credit had been taken under Rule 57Q of the Central Excise Rules, 1944, without verifying the nature and origin of the scrap, and whether the matter required remand for such verification.

Analysis: The capital goods on which Modvat credit was taken in March 1994 could not, on the face of the record, be presumed to have been reduced to scrap within a short period thereafter. The adjudicating authority had not properly examined the factual basis of the scrap and waste allegedly arising in the factory, nor verified whether the duty demand was sustainable on the actual nature of the material. The record therefore required further factual scrutiny before any duty demand or consequential penalty could be finally sustained.

Conclusion: The impugned order was set aside and the matter was remanded to the Commissioner for fresh verification of the type and nature of the waste and scrap. The appeals of the assessee were allowed by way of remand, and the Revenue's appeals stood disposed of accordingly.

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