Modvat credit adjustment for duty on processing waste upheld where rules permitted use of accumulated credit.

Modvat credit on inputs used in the manufacture of dutiable goods exported under bond could be adjusted against duty on waste generated during processing of inputs used for exempt final products, where the relevant rules permitted credit on inputs for dutiable goods to be used for duty payment on such waste. The assessee had satisfied the conditions for availing credit, and no rule was shown to prohibit use of the accumulated credit in these circumstances. The waste was therefore treated as duty payable by adjustment of the accumulated credit, and the issue was decided in favour of the assessee.

---

---

Issues: Whether Modvat credit accumulated on inputs used in the manufacture of dutiable goods exported under bond without payment of duty could be utilized for payment of duty on waste generated from processing inputs used in the manufacture of exempt final products.

Analysis: The relevant rules permitted credit taken on inputs used for dutiable goods to be utilized for payment of duty on waste arising in the course of manufacture. The assessee had satisfied the conditions for availing Modvat credit, and no rule was shown to disentitle it from using accumulated credit in the circumstances of the case. The waste generated during processing was held to be duty payable by adjustment of such accumulated credit.

Conclusion: The question was answered in favour of the assessee and against the revenue.

---