Scrap / Wastage arising out of the manufacturing process - Central Excise Practice Manual (OLD) - Central Excise

SCRAP AND WASTE ARISING OUT OF MANUFACTURE Wastes and scraps are considered as final products and hence they become dutiable provided the following conditions are fulfilled: 1. They are generated in the course of manufacturing process, 2. They are specified in the tariff, and 3. They are marketable. The Cenvat credit availed can be utilised for payment of duty on waste scrap as waste and scrap are 'final products' within the definition given in the credit rules. I. Scrap and waste should be manufactured in the course of manufacturing process: Waste and scrap generated without any process is not liable to Excise duty as waste and scrap is considered as incidental to the manufacturing process of the final product. [International Tobacco v. CCE] II. Scrap and waste must be specified in the tariff as excisable goods: If a particular waste is not mentioned in the Central Excise Tariff, it is not an 'excisable goods' or 'exempted goods'. Thus if a particular scrap or waste is mentioned under the tariff heading it will be an excisable goods and for this the manufacturer has to comply with the following conditions: 1. Such scrap and waste should be indicated in the registration certificate. 2. Such scrap and waste should be declared in the classification declaration filed every year with the department. 3. It should be entered in the Daily stock Account at the end of each day indicating the type and quantum of scrap generated by each section of the factory. Scrap of different articles must be separately accounted and accumulated. 4. In case of shortage of storage place for scraps and wastes, the manufacturer can accumulate scrap in different parts of the same factory premises after seeking permission from the assistant commissioner, or it can be accumulated in the scrap yard as indicated in the ground plan. III. Scrap and waste must be marketable: Scrap and wastes which come into existence, but are not marketable at all (i.e. no buyer for scrap) are not dutiable and can be destroyed after seeking permission from the assistant commissioner. There are certain articles which may fetch some value such as refuse, ashes and rubbish, but they are not excisable as they are neither considered as scrap or waste nor marketable. Clearances of packing material in which inputs were packed: Empties packing materials in which inputs were received are not dutiable even if they are sold. For e.g. drums/containers used for packing inputs are not dutiable if they are sold later on. [Indian oil v. CCE] Treatment of scraps and wastes in other situations: 1. Finished goods becoming waste or scrap: - if the finished goods already entered in daily stock account get destroyed, prior permission is required to scrap the goods so damaged, after giving proper details of the scrap of finished goods so that the department could remit the duty paid on such finished goods and impose duty on scrap if they are saleable and falls under the tariff heading. 2. Inputs becoming scrap or waste: - in case of service provider if some inputs becomes waste while providing services, no amount or duty is payable as they are used for providing output services, but if they become waste even before putting them to use the amount equal to Cenvat will become payable as they are not used for providing output services.