Modvat credit on defective ingots used for re-rolling was allowed despite the supplier's waste-and-scrap description.

Modvat credit was admissible on defective ingots received by a re-rolling mill for re-rolling, because the unit could not melt scrap and the material was capable of direct use as input in its manufacturing process. The supplier's description of the goods as waste and scrap was not ative, since credit eligibility depended on the material's actual use and character in the recipient's operations. The stated ratio is that material capable of direct use as re-rolling input does not lose credit eligibility merely because it is labelled waste and scrap by the supplier.

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Issues: Whether Modvat credit was admissible on defective ingots received by a re-rolling mill for re-rolling purposes, though described by the supplier as waste and scrap.

Analysis: The appellants were only a re-rolling unit and had no furnace for melting scrap. The material received was defective ingots capable of being re-rolled and therefore constituted input material for the finished product. A similar issue had already been decided in favour of the assessee, and that ratio was followed.

Conclusion: Modvat credit was admissible on defective ingots received for re-rolling purposes, and the denial of credit was unsustainable.

Ratio Decidendi: Material capable of direct use as re-rolling input does not lose credit eligibility merely because it is described as waste and scrap by the supplier.

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