Modvat credit on waste and scrap upheld where such goods are treated as final products under the credit rule.

Waste and scrap cleared on payment of duty were treated as final products for Modvat purposes under the applicable credit rule, following the Board circular dated 29-8-2000. On that basis, credit taken on inputs used in producing such waste and scrap could not be disallowed merely because the goods were waste and scrap. The contrary view adopted in the orders below was unsustainable, and the disallowance of Modvat credit was held not to stand.

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Issues: Whether waste and scrap cleared on payment of duty could be treated as final products for the purpose of Modvat credit and whether the credit taken in relation to inputs used in such waste and scrap was liable to be disallowed.

Analysis: The Board circular dated 29-8-2000 clarified that waste and scrap are final products within the meaning of Rule 57AA(c). The orders below proceeded on the contrary view that waste and scrap cleared on payment of duty could not be treated as clearance of finished excisable goods, and therefore the related credit was disallowable. In view of the circular, that basis could not be sustained.

Conclusion: The disallowance of Modvat credit was not sustainable and the issue was decided in favour of the appellant.

Ratio Decidendi: Where waste and scrap are treated as final products under the applicable credit rule, Modvat credit relatable to inputs used in such goods cannot be disallowed merely because the goods are waste and scrap.

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