Modvat credit on chlorine gas retained despite process loss where residual gas was neutralised through the plant's scrubbing system.

Modvat credit was treated as admissible where chlorine gas was used in the manufacturing process and only the residual gas was routed through a scrubbing system for neutralisation. The record did not substantiate the Revenue's claim that a fixed percentage of the gas escaped into the atmosphere, and the alleged process loss was not shown by material evidence. On that basis, the text states that input lost during manufacture does not cease to be used in or in relation to manufacture merely because it does not remain in the final product, so credit cannot be denied on process loss alone.

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Issues: Whether Modvat credit was admissible on the chlorine gas that was alleged to have been lost or flamed out during the manufacturing process.

Analysis: The record did not support the Revenue's allegation that 10% of the chlorine gas escaped into the atmosphere. The finding of reversal of credit was not supported by material evidence, and the basis for the percentage of gas allegedly flamed out was not satisfactorily explained. The appellate finding accepted the technical process showing that chlorine gas was first used in manufacture, and the residual gas was led to a scrubbing arrangement using caustic soda to neutralize the gas. In such circumstances, gas lost during the process was treated as used in or in relation to manufacture, and credit could not be denied merely because a portion did not remain in the final product.

Conclusion: Modvat credit on the disputed chlorine gas was admissible and the Revenue's challenge failed.

Final Conclusion: The appeal was rejected, and the assessee's entitlement to credit was upheld.

Ratio Decidendi: Where an input is consumed in the manufacturing process and the residual gas is neutralized through the plant's scrubbing system, the input is regarded as used in or in relation to manufacture for Modvat purposes, and credit cannot be denied on the ground of process loss alone.

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