Modvat credit on duty-paid manufacturing waste remains available even when the principal product is exempt.

Modvat credit was held admissible on inputs used to manufacture waste generated during production of gas-filled bulbs where that waste was cleared on payment of duty. The exempt status of the principal manufactured goods did not bar credit, because the duty-paid waste was treated as the relevant final product for Modvat purposes. The departmental clarification supported allowing proportionate credit on the inputs attributable to the waste. The Revenue's objection therefore failed, and credit could not be denied merely because the main product was exempt.

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Issues: Whether Modvat credit was admissible on inputs used in the manufacture of waste generated during the production of gas-filled bulbs, when the waste was cleared on payment of duty and the principal manufactured goods were exempt.

Analysis: Waste arising in the course of manufacture was treated as the specified product for purposes of Modvat. Since the waste was cleared on payment of duty, the assessee was entitled to take proportionate credit on the inputs used in its manufacture. The exemption applicable to the main product did not disqualify credit where the duty-paid waste itself constituted the relevant final product, and the departmental clarification supported this position.

Conclusion: Modvat credit was admissible to the assessee and the Revenue's objection failed.

Ratio Decidendi: Where waste generated in manufacture is a specified final product and is cleared on payment of duty, credit on inputs used in its manufacture cannot be denied merely because the principal product is exempt.

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