By-product treatment under MODVAT rules preserved credit where hydrol arose from dextrose manufacture and was not the final product.

Hydrol generated during manufacture of dextrose monohydrate was treated as a by-product, not the final product, because the technical material showed dextrose crystals as the main output and hydrol as mother liquor removed on centrifuging. Rule 57D applied since inputs contained in waste, refuse or a by-product arising during manufacture of the final product do not justify curtailment of MODVAT credit. The contrary view that hydrol was the principal product was rejected, and denial of credit was unsustainable.

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Issues: Whether hydrol was a by-product of the manufacture of dextrose monohydrate so as to attract Rule 57D and preserve MODVAT credit, or a final product in itself so as to attract denial of credit under Rule 57C.

Analysis: The Tribunal found from the technical literature and the manufacturing process that dextrose crystals were the main product and the mother liquor thrown out on centrifuging, known as hydrol, was only a by-product. Since Rule 57D protects credit where input is contained in waste, refuse or by-product arising during manufacture of the final product, credit could not be varied or curtailed merely because part of the inputs entered the by-product. The Tribunal also rejected the view that hydrol was the principal product.

Conclusion: Hydrol was held to be a by-product and not the final product, and the assessee was entitled to the benefit of Rule 57D; denial of MODVAT credit was unsustainable.

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