Scrap Neither Generated From Manufacturing Nor From Cenvatable Input/Capital Goods, No Excise Duty Payable: CESTAT

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has observed that excise duty is not payable on scrap, which is neither generated from the manufacturing process nor generated from the cenvatable input or capital goods.

The two-member bench of Ramesh Nair (Judicial Member) and Raju (Technical Member) has observed that the Show Cause Notice was baldly issued without carrying out any investigation as to whether the appellant has availed of the Cenvat Credit in respect to the scrap that was cleared without payment of duty and also the manufacturing scrap. In the absence of any investigation, the allegation in the show cause notice is bald and devoid of evidence.

The appellant/assessee are in the business of manufacturing glass and glassware items. During the audit, it was discovered that some value from the sale of scrap was appearing on the appellant's balance sheet. The range superintendent asked the appellant to furnish the details of all scrap cleared from their factory premises that appeared in their balance sheets.

In compliance with the letter, the appellant submitted the details of all the scrap they cleared from the factory. The assessee clarified that they have discharged the excise duty with respect to the manufacturing scrap and scrap generated out of cenvatable inputs or capital goods. They have also clarified that other than these two types of scrap, since they are not liable to pay the duty, they have not paid the duty.

However, a Show Cause Notice was issued, in which the demand for excise duty on all the scraps was raised. The adjudicating authority confirmed the demand, and the commissioner of appeals upheld it.

The appellant submitted that the show cause notice demanded excise duty despite the appellant's clarification that they had not paid duty on the scrap, which is other than manufacturing scrap and cenvatable scrap. Excise duty is not payable on scrap that was not generated during manufacturing but is general scrap for which no CENVAT credit was taken. The show-cause notices are void and illegal.

The tribunal held that demand was raised on all the scrap sold by the appellant, the value of which is reflected in the balance sheet. The appellant has paid the excise duty on manufacturing scrap and cenvatable scrap but stated that on general scrap, which is neither manufacturing scrap nor cenvatable scrap, they have not paid the duty. The demand raised in the show cause notice is not sustainable.

Case Title: Shreno Ltd. Versus C.C.E. & S.T.-Vadodara-i

Citation: Excise Appeal No. 11232 of 2015

Date: 14.11.2022

Counsel For Appellant: Advocate Saurabh Dixit

Counsel For Respondent: Superintendent (Authorized Representative) Prakash Kumar Singh

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