CENVAT credit on dutiable waste and scrap allowed for proportionate inputs used in manufacture despite exempt main product

Under the pre-2004 CENVAT regime, credit was available on proportionate plastic granules attributable to scrap generated in manufacture where the waste and scrap were themselves dutiable and treated as final products. The Court noted that the department classified the plastic scrap under a dutiable tariff entry and that the Board's circular recognised waste and scrap as final products for CENVAT purposes. It rejected the Tribunal's view that denial of credit followed merely because the main product was exempt, holding that the relevant input credit related only to the quantity embedded in the dutiable scrap. The assessee was therefore entitled to proportionate CENVAT credit.

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Issues: Whether CENVAT credit was admissible on the proportionate plastic granules used in the manufacture of goods from which waste and scrap arose, when the waste and scrap were themselves dutiable and treated as final products.

Analysis: The dispute related to the pre-2004 CENVAT regime under Rule 57AA and Rule 57AB of the Central Excise Rules, 1944. The assessee manufactured exempted IV fluids and, in the process, plastic scrap emerged from the use of plastic granules. The Court noted that the department itself treated the plastic scrap as dutiable under the relevant tariff entry and that the Board's circular contemporaneously clarified that waste and scrap are final products for the purpose of CENVAT credit. The Tribunal's reasoning, which denied credit on the footing that the main product was exempt, ignored the fact that the scrap was separately dutiable and that the credit claim was only proportionate to the inputs embedded in that scrap.

Conclusion: The assessee was entitled to CENVAT credit on the proportionate plastic granules attributable to the scrap generated in the manufacturing process.

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