Modvat credit on input waste: full credit allowed where paid duty covered the entire crude glycerine consignment.

Modvat credit on crude glycerine could not be reduced proportionately merely because part of the input turned into insoluble residue during transit and was washed out inside the factory. Since duty had been paid on the full consignment, Rule 57D(1) protected credit from denial or variation where input became waste or refuse during manufacture. The recognised principle that handling, pumping, transfer and transportation of raw materials form part of the manufacturing process also supported treating the entire quantity as used in relation to manufacture. Full credit of the duty paid on crude glycerine was therefore allowable.

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Issues: Whether Modvat credit on crude glycerine was required to be proportionately reduced because part of the input settled as insoluble residue during transit and was washed out inside the factory.

Analysis: The duty had been paid on the entire consignment of crude glycerine, including the portion that later became insoluble residue. Rule 57D(1) provided that credit of input duty could not be denied or varied merely because part of the input was contained in waste or refuse, or because inputs became waste during manufacture. The accepted principle that handling, pumping, transfer and transportation of raw materials form part of the manufacturing process also supported treating the whole quantity as used in relation to manufacture.

Conclusion: The appellants were entitled to credit of the entire duty paid on crude glycerine, and no proportionate reduction was permissible.

Ratio Decidendi: Where duty has been paid on the full quantity of an input and part of that input becomes waste or refuse during the manufacturing process, Modvat credit cannot be curtailed on a proportionate basis if the governing rule protects credit against such loss.

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