Modvat credit does not defeat waste-and-scrap exemption where inputs remain duty paid goods under the notification.

Waste and scrap arising in the manufacture of X-ray films remained eligible for exemption under Notification No. 14/92 because the relevant inputs were duty paid goods within the meaning of entry 19. Availment of Modvat credit did not change the character of those inputs or make them cease to be duty paid, as credit is only a mechanism for utilising duty paid on inputs against duty on the final product. The attempt to deny exemption and recover credit on that basis was therefore unsustainable.

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Issues: Whether waste and scrap arising in the manufacture of X-ray films remained eligible for exemption under entry 19 of Notification No. 14/92 despite Modvat credit having been taken on the duty paid inputs contained in the waste, and whether such credit could be recovered on that basis.

Analysis: The exemption in entry 19 applies to waste, parings and scrap of plastic classifiable under Heading 39.15 where such waste has arisen from goods on which excise duty or additional duty of customs has been paid. Taking Modvat credit is only a mechanism for utilising duty paid on inputs towards duty on the finished product. It does not alter the character of the inputs as duty paid goods. There was therefore no legal basis to treat the inputs as ceasing to be duty paid merely because credit had been availed.

Conclusion: The exemption remained available and the demand to deny it on the ground of Modvat credit was unsustainable. The appeal was dismissed.

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