Manufacture by treatment on re-imported bulk drug allowed Modvat credit of CVD for duty on the reprocessed final product.

Re-imported bulk drug subjected to basification, hydrochlorination, filtration, distillation, crystallisation, drying, sieving and blending was treated as processed into a purified, marketable crystallised form, amounting to manufacture by treatment under the relevant chapter note. On that basis, the re-imported material was correctly regarded as input used in manufacture of the final product. Because the assessee abandoned the special re-export procedure and adopted the normal duty-payment route, Modvat credit of the CVD paid on the input was admissible for use against duty on the re-processed final product. Denial of credit and the connected penalty were therefore held not sustainable.

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Issues: Whether the process undertaken on re-imported bulk drug amounted to manufacture by treatment under the relevant chapter note, and whether Modvat credit of CVD paid on the re-imported material was admissible for payment of duty on the re-processed final product cleared for re-export.

Analysis: The re-imported material was subjected to basification, hydrochlorination, filtration, distillation, crystallisation, drying, sieving and blending, which converted the impure bulk drug into a purified crystallized form fit for marketing. This amounted to treatment within the meaning of the chapter note and rendered the product marketable. On that basis, the re-imported material was correctly treated as input used in the manufacture of the final product. Since the appellant had abandoned the special re-export procedure and followed the normal route of duty payment, the Modvat credit of CVD paid on the input could be utilised against duty on the final product.

Conclusion: The denial of Modvat credit and the consequential penalty were not sustainable, and the appellant was entitled to the credit.

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