Modvat credit on tyres used in manufacture cannot be denied merely because they later became waste or scrap.

Modvat credit could not be denied where tyres were issued to the production line, used in manufacture, and later became waste and scrap. The tribunal accepted the assessee's documentary evidence, including bill card listings, and treated the earlier rejection entry as an inadvertent error supported by cogent rebuttal material. Rule 57D protected credit on goods that became waste or scrap in the course of manufacture, so the subsequent description of the tyres as scrap did not justify denial of credit. The assessee therefore succeeded on the issue.

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Issues: Whether Modvat credit could be denied on tyres issued to the production line and later shown as rejected scrap, and whether Rule 57D barred denial of credit on waste and scrap arising in the course of manufacture.

Analysis: The documentary record showed that the tyres were issued to the production line for use in manufacture, and the assessee produced bill card listings and other rebuttal evidence to explain the earlier rejection entry. The erroneous entry in the rejection code was treated as an inadvertent mistake supported by cogent evidence. Since the tyres had been used in the production process and had subsequently become waste and scrap, the credit could not be denied merely because the item was later described as scrap. Rule 57D protected credit in respect of products which became waste and scrap during manufacture.

Conclusion: The denial of Modvat credit was not justified and the assessee succeeded on the issue.

Ratio Decidendi: Modvat credit cannot be denied when the goods were actually used in the production line and later became waste or scrap in the course of manufacture, and a bona fide erroneous entry can be accepted if supported by cogent documentary evidence.

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