Cenvat credit on inputs in manufacturing waste remains admissible despite duty remission on the waste

Rule 57D of the Central Excise Rules, 1944 preserved Modvat/Cenvat credit where inputs were contained in waste, refuse or by-product arising during manufacture, and the credit could not be denied or varied merely because such waste was exempt or not chargeable to duty. The Tribunal also relied on departmental clarification confirming that credit remained admissible for inputs embedded in waste or by-product. On that basis, remission of duty on gelatin mass waste did not require reversal of the Cenvat credit attributable to the inputs used in manufacture, and the demand for reversal was held unsustainable.

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Issues: Whether the assessee was required to reverse Cenvat credit attributable to inputs contained in gelatin mass waste arising during manufacture, where remission of duty had been granted for the waste.

Analysis: The dispute turned on the effect of the applicable Modvat/Cenvat regime on inputs contained in waste, refuse, or by-product generated in the course of manufacture. The Tribunal applied Rule 57D of the Central Excise Rules, 1944, which provided that credit was not to be denied or varied merely because part of the inputs was contained in waste, refuse, or by-product arising during manufacture, even if such waste or by-product was exempt or not chargeable to duty. It also relied on the departmental clarification that Cenvat credit remained admissible in respect of inputs contained in waste, refuse, or by-product. On that basis, the Tribunal held that remission of duty on the waste did not require reversal of the credit attributable to the inputs used in the manufacture of the final products from which the waste arose.

Conclusion: The demand for reversal of Cenvat credit was not sustainable, and the assessee was entitled to succeed.

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