Modvat credit reversal on slit strips rejected where cleared material was not removed as such during manufacture.

Slit strips arising during the manufacture of steel tubes were treated as unusable or defective strips, classified and cleared on payment of duty as a final product. Because the entire input had been issued for manufacture, the removed material was not inputs remaining as such, and its clearance did not amount to removal of inputs as such. On that basis, reversal of Modvat credit, duty demand, and penalties were not sustainable.

---

---

Issues: Whether slit strips cleared during the manufacturing process were removed as such so as to attract reversal of Modvat credit and demand under the Central Excise law.

Analysis: The respondent used steel strips in the manufacture of steel tubes and, in the course of the process, slit and cut the strips to the required width. The disputed clearances were of unusable or defective slit strips, which had been treated in the classification declaration and registration certificate as strips and were cleared on payment of duty as a final product. The entire input had been issued for manufacture, and the material removed could not be regarded as inputs remaining as such. The view already taken in an identical matter was followed, holding that the goods were not cleared as such.

Conclusion: The clearance of slit strips did not amount to removal of inputs as such, and the demand and penalties were not sustainable.

---