No Excise Duty demand on waste and scrap of machinery on availment of Cenvat Credit: CESTAT [Read Order]

A Two-Member Bench of the Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) observed that no excise duty can be demanded on waste and scrap of machinery on availment of cenvat credit.

The counsel for the appellant submitted that regarding issue of demand on purported illicit clearance of waste and scrap is not sustainable on the ground that the revenue failed to show that the appellant had availed the Cenvat credit on the machinery from which the waste and scrap were generated. He submits that the demand on waste and scrap is related to the worn-out machinery and not the scrap generated during the manufacture of excisable goods. The counsel placed reliance on the judgment of the Supreme Court in the case of Grasim Industries Ltd vs. Union of India.

In Grasim Industries Ltd vs. Union of India, the appeal was directed against the Judgment and Order dated 31.07.2008 of the High Court of Judicature of Rajasthan in Central Excise Appeal No. 60/2006. By the impugned Order, the High Court has set aside the Order dated 09.08.2005 of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) whereby the Tribunal had dropped the entire duty demand and penalty imposed on the assessee.

The Supreme Court quashing the order of the High Court observed that “Metal scrap and waste arising out of the repair and maintenance work of the machinery used in manufacturing of cement, by no stretch of imagination, can be treated as a subsidiary product to the cement which is the main product. The metal scrap and waste arise only when the assessee undertakes repairing and maintenance work of the capital goods and, therefore, do not arise regularly and continuously in the course of a manufacturing business of cement.”

The Bench of Ramesh Nair, Judicial Member and Raju, Technical Member noted that “we find that the department could not establish that the waste and scrap generated from the machinery and on such machinery any cenvat credit was availed at the time of receipt and installation thereof. Therefore, unless and until the department shows that the appellant have availed any Cenvat credit, no demand on waste and scrap of such machinery can be made. Therefore, the demand of duty on the waste and scrap of the machinery is not sustainable, hence, the same is set aside.”

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