Modvat credit on wastage in repacking upheld where the process amounted to manufacture under excise law.

Modvat credit was held admissible on inputs lost as wastage during repacking of bulk detergent powder into small containers because the repacking activity was treated as manufacture under the excise law. The record showed the wastage was not clandestinely removed and was within the limited percentage permitted by the supplier. Since the applicable excise rule protected credit where inputs were lost in the course of manufacture, credit could not be denied merely because part of the inputs became wastage or invisible loss. The demand was therefore rightly dropped and the Revenue's challenge failed.

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Issues: Whether Modvat credit was admissible on inputs lost as wastage during repacking of bulk detergent powder into small containers and whether such credit could be denied on the ground that the repacking process did not involve manufacture.

Analysis: The process of transferring bulk detergent powder into small packs was accepted as amounting to manufacture under the excise law. The record showed that wastage during repacking was not clandestinely removed, and the supplier had permitted a limited percentage of wastage. The applicable excise rule protected credit where part of the inputs was lost in the course of manufacture, and the departmental circular and judicial authorities relied upon below supported the view that Modvat credit could not be denied merely because some inputs were contained in wastage or invisible losses.

Conclusion: Modvat credit on inputs lost during the repacking process was admissible, and the demand was rightly dropped; the Revenue's challenge failed.

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