Waste sludge from paper manufacture is a by-product under Rule 57D(1), so Rule 57CC recovery cannot be applied.

Waste sludge arising incidentally during paper manufacture was treated as a residue or by-product, not the final excisable product, because it was not what the assessee set out to manufacture. Its sale did not change that character. Where the material falls within Rule 57D(1), Modvat credit remains available and the recovery mechanism under Rule 57CC cannot be applied to the same transactions. The two provisions must be read harmoniously so that one does not defeat the operation of the other.

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Issues: Whether waste sludge arising incidentally during manufacture of paper is an excisable final product so as to attract payment of 8% under Rule 57CC, or whether it is a waste/by-product covered by Rule 57D(1).

Analysis: Waste sludge was generated incidentally in the course of manufacturing paper and was not the product which the assessee set out to manufacture. A residue or waste arising from the manufacturing process cannot be treated as the final product merely because it is sold. Where such material falls within Rule 57D(1), the assessee is entitled to retain Modvat credit, and the recovery mechanism under Rule 57CC cannot be invoked for the same transactions. The rules must be read harmoniously so that one provision does not defeat the operation of the other.

Conclusion: Waste sludge was not a final excisable product, but a waste/by-product covered by Rule 57D(1), and the demand to pay 8% under Rule 57CC was not sustainable.

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