Modvat credit cannot be denied for manufacturing waste from faulty mixing when inputs entered the process and no clandestine removal was shown.

Rule 57D protects Modvat credit where inputs taken into manufacture become waste or are contained in waste during the manufacturing process, and it does not require that the waste arise only at a particular stage or free from faulty mixing. Credit cannot be denied merely because the waste resulted from imperfect mixing, where the inputs had entered the manufacturing process and there was prior intimation of the loss with no allegation of clandestine removal. The credit was therefore rightly allowed and the Revenue's challenge failed.

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Issues: Whether Modvat credit could be denied or refunded amount treated as inadmissible merely because the input waste arose due to faulty mixing during manufacture and the disposal was not supervised by a Central Excise officer.

Analysis: Rule 57D protects credit where part of the input is contained in waste or the inputs themselves become waste in the course of manufacture of the final product. The rule does not require that the waste must arise only at a particular stage of production or that it must arise without negligence. Once the inputs are shown to have been taken into the manufacturing process and the waste occurs during that process, denial of credit is not justified merely because the mixing was faulty. The record also showed prior intimation of the loss and no allegation of clandestine removal.

Conclusion: The credit was rightly allowed and the Revenue's appeal failed.

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