Modvat credit on inputs in manufacturing waste need not be reversed when waste is recycled and cleared at nil duty.

Rule 57D protected Modvat credit where part of the inputs ended up in waste arising during manufacture of the final product, because such credit could not be denied or varied merely on that basis. The waste here was exempt on clearance, and its later recycling into sub-standard granules cleared at nil duty did not require reversal of the credit attributable to the inputs contained in the waste. Rule 57F on clearance of waste did not displace the protection under Rule 57D. The Revenue's rectification application was rejected.

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Issues: Whether Modvat credit was liable to be reversed in respect of inputs contained in waste and reprocessed granules cleared at nil rate of duty.

Analysis: Rule 57D of the Central Excise Rules, 1944 provided that credit of specified duty could not be denied or varied merely because part of the inputs was contained in waste, refuse or by-product arising during manufacture of the final product. The waste in question arose during the manufacture of the final product, and the credit attributable to the inputs contained in such waste could not be denied under Rule 57D. Rule 57F dealt with duty on clearance of waste from the factory, and the waste was exempted under Notification No. 53/88-C.E. The claim that recycling of the waste into sub-standard granules for clearance at nil rate of duty required reversal of Modvat credit was not accepted, because the statutory protection under Rule 57D continued to apply.

Conclusion: Modvat credit was not liable to be reversed for the inputs contained in the waste, and the Revenue's rectification application was rejected.

Ratio Decidendi: Credit of duty on inputs cannot be denied or varied merely because part of the inputs is contained in waste arising during manufacture of the final product.

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