Modvat credit on rejected goods upheld where customer-processing was integral to manufacture and Rule 173H objection failed.

The appellate authority found that the processes carried out on goods received from customers formed an integral part of manufacture of the new products. That factual finding was not challenged before the Tribunal, so the Revenue's basis for denying Modvat credit was not established. As a result, the objection based on Rule 173H did not survive, and the respondents were held entitled to Modvat credit on the rejected goods used in manufacture.

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Issues: Whether the respondents were entitled to Modvat credit on rejected goods used in the manufacture of final products, and whether the processes undertaken on the goods received from customers attracted Rule 173H.

Analysis: The appellate authority recorded a finding that the processes undertaken on the goods received from customers formed an integral part of the manufacture of the new products. That finding was not controverted before the Tribunal. In view of that unrebutted factual finding, the basis for denying Modvat credit was not made out, and the objection founded on Rule 173H did not survive.

Conclusion: The respondents were entitled to Modvat credit, and the Revenue's appeal failed.

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