Manufacturing loss by spillage or evaporation can fall within Rule 57D when the material still has physical existence.

Loss of liquid oxygen through spillage or evaporation during manufacture was treated as falling within Rule 57D of the erstwhile Central Excise Rules, 1944. The Tribunal reasoned that materials lost in the manufacturing process do not cease to exist merely because they lose visible identity, and that physical existence during manufacture is sufficient to exclude the loss from being treated as outside the rule. The earlier contrary view was regarded as per incuriam in light of the High Court decision relied upon. The issue was therefore resolved in favour of the assessee.

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Issues: Whether loss by spillage or leakage during the course of manufacture of liquid oxygen gas could be treated as waste, residue or by-product within Rule 57D of the erstwhile Central Excise Rules, 1944.

Analysis: The Tribunal followed the view taken in the assessee's own earlier case and held that goods lost by spillage or evaporation during the manufacturing process do not cease to exist merely because they lose visible identity. It reasoned that such losses occur in the course of manufacture and the materials still have physical existence, so the distinction drawn to exclude them from Rule 57D was not sustainable. The earlier contrary view was treated as per incuriam in light of the High Court decision relied upon.

Conclusion: The loss was held to fall within Rule 57D, and the issue was decided in favour of the assessee.

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