2006 (11) TMI 124 - HC - Central Excise

Applicability of Rule 57AB and 57S - machinery items installed in the factory much before modvat credit scheme came into existence - these two provisions during the relevant period could be invoked only in case the waste material sold by the assessee was outcome of the capital goods on which modvat credit has been availed by the assessee - no evidence to support that the capital goods viz. Shaft bush of which the scrap material was sold by the assessee credit was availed by the manufacturer

Summary

Issues:
1. Interpretation of whether gun-metal scrap was considered as metal scrap out of capital goods.
2. Determination of excise duty liability on the sale of gun metal scrap under specific tariff sub-headings.

Issue 1: Interpretation of gun-metal scrap classification
The case involved the interpretation of whether gun-metal scrap should be considered as metal scrap out of capital goods on which modvat credit was paid. The appellant contended that gun metal, a tin alloy with zinc, was used for casting in machinery and equipment, essential for corrosion resistance and strength. They argued that when gun metal loses its essential characteristics due to wear and tear, it becomes scrap and is cleared without duty payment. The appellant also highlighted that waste and scrap did not arise from the manufacturing process as scrap of inputs. The Adjudicating Authority found that the gun metal scrap arose from capital goods on which modvat credit was availed, requiring clearance on payment of duty. The Commissioner confirmed the demand for duty on gun metal scrap under specific tariff sub-headings. However, the Tribunal set aside the duty levy on gun metal scrap, stating that there was no evidence of modvat credit availed on the capital goods from which the scrap originated.

Issue 2: Excise duty liability on gun metal scrap
The Tribunal's decision was based on the lack of evidence showing modvat credit availed on the capital goods from which the gun metal scrap was sold. The Tribunal emphasized that unless the machine itself was sold as scrap or waste with modvat credit availed, the provisions of relevant rules did not apply. The High Court analyzed the scheme of Rules 57S and 57AB, concluding that waste and scrap of capital goods were not subject to excise duty independently. The Court highlighted that the levy of excise duty on scrap of capital goods required the availing of modvat credit on the capital goods sold as scrap. The Court emphasized that the provisions of Rule 57S and 57AB were not applicable in this case as the essential conditions for invoking these rules were not fulfilled. The Court dismissed the appeal, stating that the capital goods themselves were not sold as scrap, and hence, the provisions of the rules were not attracted.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the waste and scrap of capital goods were not subject to excise duty independently. The Court highlighted the importance of availing modvat credit on capital goods sold as scrap to trigger the provisions of relevant rules. The judgment clarified the interpretation of gun-metal scrap classification and excise duty liability, providing a detailed analysis of the legal aspects involved in the case.