MODVAT credit on plastic waste and scrap from BOPP film manufacture remains protected when treated as a by-product, not final product.

Plastic waste and scrap emerging during manufacture of BOPP films from duty-paid polypropylene granules were treated as a by-product, not a final product, so MODVAT credit could not be denied or reversed merely because the waste arose in processing. The earlier view relied on held that inputs do not become non-duty-paid simply because credit has been taken, and that the relevant exemption and waste-removal provisions did not support the Revenue's demand. The Tribunal's approach was sustained, and the issue was answered against the Revenue and in favour of the assessee.

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Issues: Whether plastic waste and scrap arising during manufacture of BOPP films is to be treated as a final product attracting reversal of MODVAT credit, or as a by-product to which the protective credit regime applies.

Analysis: The disputed manufacture involved Biaxially Oriented Polypropylene Films and the emergence of plastic waste and scrap from the processing of duty-paid polypropylene granules. The earlier decisions relied upon treated such waste and scrap as a by-product and not a final product, and held that inputs do not become non-duty-paid merely because credit has been taken. On that basis, the Tribunal's view was that the credit position could not be disturbed merely because the waste arose during manufacture, and that the relevant exemption and waste-removal provisions did not justify the Revenue's demand.

Conclusion: The plastic waste and scrap was not a final product and no interference with the Tribunal's order was warranted; the question was answered against the Revenue and in favour of the assessee.

Ratio Decidendi: Where waste and scrap generated in the course of manufacture arise from duty-paid inputs and are treated as a by-product, they do not become non-duty-paid final products for the purpose of denying MODVAT credit or demanding reversal merely because they emerged during processing.

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