Modvat credit on glass bottles: reversal for bottles broken on receipt, but credit allowed where bottles broke during manufacture.

Modvat credit was held reversible for glass bottles received already broken, because such items could not properly form part of the input credit record and the assessee accepted reversal for that portion. Credit was, however, admissible for bottles received in good condition and later broken during the manufacturing process, as the record did not show removal as such or use in duty-free clearances. The demand was upheld only to the extent relating to the broken-at-receipt bottles, with the balance relief going to the assessee.

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Issues: Whether Modvat credit was reversible in respect of glass bottles received in broken condition and whether credit was admissible for glass bottles received in good condition and broken during the manufacturing process.

Analysis: Bottles already broken at the time of receipt could not have been entered in the input records and therefore were outside the scope of credit already taken; the assessee accepted reversal for such bottles. For the remaining bottles, the record did not show that they were removed as such or used in the manufacture of final products cleared without duty. Bottles issued from the Modvat account and broken during manufacture were treated as covered by the protection available for inputs used in the manufacturing process.

Conclusion: Credit was not admissible to the extent it related to bottles received in broken condition, but credit was admissible for bottles received in good condition and broken during manufacture. The demand was upheld only to that limited extent in favour of the Revenue and the balance relief was in favour of the assessee.

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