Dutiability of manufacturing waste and scrap affirmed where Modvat credit was taken and exemption conditions were unmet.

Waste and scrap arising during manufacture were held dutiable where Modvat credit had been taken on the inputs used for the exported final products. The exemption notification applied only when such input credit had not been availed, so the refund claim based on that notification was not maintainable. The authorities treated waste and scrap as a normal incident of the manufacturing process and distinguished the cited precedents because the department was seeking duty on the scrap itself, not reversal of input credit.

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Issues: Whether duty was payable on waste and scrap arising in the course of manufacture when input credit had been taken and whether the refund claim based on exemption notification was sustainable.

Analysis: The appellants had taken Modvat credit on inputs used in the manufacture of the exported final products. The benefit of the exemption notification was available only where input credit had not been taken. Waste and scrap generated during manufacture was treated as a necessary incident of the manufacturing process, and the fact that duty had already been paid on such clearances supported the demand. The authorities distinguished the cited precedents on facts, since the department was not seeking reversal of input credit but payment of correct duty on the waste and scrap itself.

Conclusion: Duty on the waste and scrap was payable and the refund claim was not maintainable.

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