Modvat credit on inputs does not defeat exemption for goods made from duty-paid materials, duty demand unsustainable

Availment of Modvat credit on inputs does not, by itself, make those inputs non-duty-paid for the purpose of an exemption notification covering goods made from duty-paid materials. On that construction, plastic waste and scrap arising during manufacture could not be denied the benefit of Notification No. 14/92-C.E. merely because credit had been taken on the inputs. The duty demand and penalty based on the premise that the waste had to be cleared on payment of duty were therefore not sustainable, and the assessee's position was accepted.

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Issues: Whether plastic waste and scrap arising during manufacture, where Modvat credit had been availed on the inputs, was liable to duty and outside the benefit of Notification No. 14/92-C.E.

Analysis: The dispute turned on the construction of the exemption notification and the effect of availing Modvat credit on the character of the inputs. The Notification applied to finished goods made from materials on which appropriate duty had already been paid. Availment of Modvat credit on the inputs indicated that the inputs were duty paid, and did not make them non-duty-paid merely because credit had been taken. On that basis, the earlier decisions relied upon supported the view that the exemption remained available. The demand and penalty confirmed on the premise that the waste had to be cleared on payment of duty were therefore not sustainable.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The appeal failed, and the order setting aside the duty demand and penalty was sustained.

Ratio Decidendi: Availment of Modvat credit on inputs does not, by itself, make the inputs non-duty-paid so as to deny an exemption notification framed for goods made from duty-paid materials.

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