2008 (8) TMI 288 - AT - Central Excise

Demand and penalty on ground that appellant had cleared waste and scrap of capital goods on which Cenvat credit was availed - After use of the capital goods the appellant is recovering a portion of the value arising as waste and scrap - Rule 3(5A) envisages that on the present value of scrap/waste an amount equal to duty leviable shall be paid - duty is payable on the present value on the date of clearance - Only when the question of manufacturing arises the section notes as mentioned in Section XV of CET will become relevant - demand of duty is legal - issue involving mere legal interpretation penalty unjustified

Issues involved:
Appeal against order of Commissioner (Appeals) regarding clearance of waste and scrap of capital goods on which Cenvat credit was availed, demand of duty, penalty under Section 11AC, interpretation of Rule 3(5A) of Cenvat Credit Rules, 2004, applicability of duty on waste and scrap arising out of capital goods, relevance of judgments in similar cases, legal interpretation of duty on scrap/waste, imposition of penalty.

Analysis:

1. Background and Facts:
The appeal was filed against the order of the Commissioner (Appeals) regarding the clearance of waste and scrap of capital goods on which Cenvat credit was availed. The appellant, engaged in manufacturing zinc and lead zinc, replaced some parts of the capital goods which became unusable and cleared them as scrap. The original authority demanded duty and imposed a penalty, which was upheld by the Commissioner (Appeals).

2. Arguments by Appellant:
The appellant argued that waste and scrap cleared by them did not arise from manufacturing activity and did not attract excise duty as per Note 8 of Section XV of the Central Excise Tariff Act, 1985. They contended that no duty should be payable as the scrap did not arise from manufacturing activity.

3. Legal Interpretation of Rule 3(5A):
The appellant relied on various judgments to support their argument. The levy of duty was based on sub-rule (5A) of Rule 3 of the Cenvat Credit Rules, 2004. The rule stated that if capital goods are cleared as waste and scrap, the manufacturer must pay duty equal to the transaction value. The appellant argued that as the scrap did not arise from manufacturing activity, no duty should be payable under this rule.

4. Decision and Analysis by Tribunal:
The Tribunal considered submissions from both sides and clarified that the dispute related to waste and scrap arising from capital goods on which Cenvat credit was availed. The Tribunal noted that the appellant did not manufacture the capital goods or the waste scrap arising from them. The duty was demanded based on the conditions under which Cenvat credit was allowed and availed by the appellant.

5. Interpretation of Duty on Scrap/Waste:
The Tribunal emphasized that Rule 3(5A) did not require classification of waste and scrap being cleared by the appellant. The classification had already been done at the time of capital goods clearance by the manufacturer. The duty payable on scrap/waste was based on the present value, with the applicable rate at the time of clearance and the value on the date of clearance.

6. Penalty and Conclusion:
While upholding the demand of duty, the Tribunal concluded that there was no basis for imposing a penalty as the issue involved legal interpretation. The appeal was disposed of by upholding the duty demand with interest and setting aside the penalty imposed on the appellant.

This detailed analysis covers the legal judgment involving the interpretation of Rule 3(5A) of the Cenvat Credit Rules, 2004, and the applicability of duty on waste and scrap arising from capital goods.

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