Modvat credit on input sulphuric acid did not require reversal despite clearance of spent acid; duty on the spent product was sustained.

Under the Modvat scheme, sulphuric acid used in the manufacture of chlorine remained an eligible input even though it emerged later as spent acid. The scheme did not require one-to-one correlation between input and output, and valid credit was not to be reversed merely because part of the input appeared in altered form. Where such waste or spent material is cleared from the factory, the rules provide for duty treatment on that clearance. On the stated facts, duty on the spent sulphuric acid was sustained and relief against the demand was denied.

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Issues: Whether spent sulphuric acid emerging after use of concentrated sulphuric acid in the manufacture of chlorine was liable to duty under Rule 57F(4)(a) of the Central Excise Rules, 1944, and whether Modvat credit taken on the input was required to be reversed.

Analysis: The input sulphuric acid was brought into the manufacturing stream and used in relation to manufacture of the final product. The governing Modvat scheme did not require one-to-one correlation between input and output, nor did it require reversal of credit merely because part of the input emerged in a different form. Where inputs are cleared from the factory, or where waste arises from processing of inputs on which credit has been taken, the scheme specifically provides for duty treatment under the relevant rule. The matter was covered by prior Tribunal and High Court authority holding that full credit was admissible on the input used and that the spent acid, when cleared, was liable to duty.

Conclusion: Duty on the spent sulphuric acid was rightly demanded, and the assessee was not entitled to relief against the demand.

Final Conclusion: The demand of duty on spent sulphuric acid was sustained and the appeal failed.

Ratio Decidendi: Under the Modvat scheme, an input used in or in relation to manufacture may attract duty when cleared from the factory in altered or spent form, and such liability does not require reversal of the Modvat credit already validly taken.

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