CESTAT Delhi Sets Aside ₹22.59 Lakh CENVAT Credit Demand Against Honda Motorcycle Over Manufacturing Waste, Scrap

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Delhi, has set aside a ₹22.59 lakh CENVAT credit demand, along with interest and penalty, raised against Honda Motorcycle and Scooters India Pvt. Ltd. over waste and scrap that arose during the manufacture of scooters, motorcycles, and their parts.

A bench of Technical Member P.V. Subba Rao allowed Honda's appeal and set aside the impugned order.

The bench observed, “Waste and scrap is never manufactured by any manufacturer. It is not even a byproduct. It arises in the course of manufacture of the final product.”

Honda manufactures scooters and motorcycles and their parts. During manufacture, waste and scrap in the form of metal scrap, bio compost, spent solvent, aluminum dross, and used lubricating oil arose and were sold by the company.

According to the department, the appellant had manufactured waste and scrap which was exempted or non-excisable and sold it for consideration. It therefore alleged that Honda was required to reverse a proportionate amount of CENVAT credit.

Honda argued that the waste and scrap were never manufactured and only arose in the process of manufacturing the final products. Therefore, the requirement to reverse credit did not apply.

Agreeing with the company, the Tribunal held that waste and scrap are distinct from goods that are manufactured and merely arise during the manufacturing process.

The bench observed, “Rule 6(1) of the CCR only deals with cases where the same inputs are used for manufacture of dutiable and exempted goods and it does not cover those cases where some input have gone into the waste and scrap which is generated.”

The tribunal noted that an identical issue involving the same appellant had earlier been decided in its favour by a Division Bench of the Tribunal. Following that decision, it set aside the impugned order and allowed the appeal with consequential relief.

For Appellant: Advocates Deepali and Shri Shivam Bansal,

For Respondent: V.J. Saharan, Authorised Representative