Modvat credit on evaporated inputs remains available when loss is a natural consequence of manufacturing, not waste under Rule 57D.

Rule 57D protects Modvat credit only where inputs are contained in waste, refuse or by-product arising in manufacture, or where the inputs themselves become waste during manufacture. Evaporation of nitrogen and liquid argon was treated as a natural consequence of the manufacturing process, not as waste, refuse or by-product. On that basis, the credit could not be denied on the evaporated inputs, and the Revenue's challenge failed.

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Issues: Whether Modvat credit could be denied on the quantity of nitrogen and liquid argon that evaporated during the manufacturing process under Rule 57D of the Central Excise Rules, 1944.

Analysis: Rule 57D protects credit only where part of the inputs is contained in waste, refuse or by-product arising during manufacture, or where the inputs themselves become waste during manufacture. The evaporated gas was not treated as waste, refuse or by-product arising in the course of manufacture. Evaporation was held to be a natural consequence of the manufacturing activity, and therefore outside the scope of the rule.

Conclusion: Modvat credit could not be denied on the evaporated inputs under Rule 57D, and the Revenue's challenge failed.

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