Marketability of broken tiles and Modvat credit on scrap upheld under Rule 57D

Broken ceramic glazed tiles emerging during sorting and packing were treated as scrap, not excisable goods, because they were not shown to be marketable as usable tiles and were cleared under an exemption available only for scrap. On that factual footing, the tiles were not liable to duty. Rule 57D also protected Modvat credit where part of the inputs was contained in waste, refuse or by-product arising in manufacture, and scrap was treated as commercially synonymous with waste. The absence of the word "scrap" in the rule did not defeat relief, so input credit on the duty paid on inputs remained admissible.

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Issues: (i) Whether broken ceramic glazed tiles emerging during sorting and packing were excisable goods liable to duty, and (ii) whether Modvat credit on input duty was admissible in respect of such broken tiles under Rule 57D.

Issue (i): Whether broken ceramic glazed tiles emerging during sorting and packing were excisable goods liable to duty.

Analysis: The broken tiles were cleared only after exemption under Notification No. 139/90-C.E., which was available only where the tiles were in the nature of scrap and not capable of being used as tiles. The record also did not show that the broken tiles were sold for any considerable value or that they could be recycled into glazed tiles. The reasoning in the earlier decisions treating similar broken tiles as non-marketable remained applicable on the facts.

Conclusion: The broken tiles were not to be treated as excisable goods liable to duty.

Issue (ii): Whether Modvat credit on input duty was admissible in respect of such broken tiles under Rule 57D.

Analysis: Rule 57D protects credit where part of the inputs is contained in waste, refuse or by-product arising in manufacture, and the expression 'scrap' was treated as commercially synonymous with waste. Since the Assistant Collector had granted exemption on the footing that the broken tiles were scrap, the condition for applying Rule 57D stood satisfied. The contention that absence of the word 'scrap' in Rule 57D excluded relief was rejected.

Conclusion: Modvat credit on the input duty was admissible to the assessee under Rule 57D.

Final Conclusion: The appeals failed because the broken tiles were treated as scrap rather than dutiable final products, and the input credit claim was upheld on that basis.

Ratio Decidendi: Where broken goods are found to be scrap and are not marketable as usable goods, they are not to be treated as dutiable final products, and input credit cannot be denied merely because the rule refers to waste or refuse rather than using the word scrap.

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