MODVAT credit on inputs used in waste and scrap production remained admissible where cut tyres and tubes were not distinct finished goods.

MODVAT credit on inputs used to manufacture cut tyres and tubes was admissible because the cut tyres and tubes were treated as waste and scrap, not as a separate finished excisable product. The reasoning was that defective or unusable goods arising in the course of manufacture do not constitute a distinct new article, so credit cannot be denied merely because part of the inputs remains embedded in the waste. Consistently with the relevant trade notice and Rule 57D(1), no recovery of the credit attributable to inputs contained in the waste was warranted.

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Issues: Whether MODVAT credit taken on inputs used in the manufacture of cut tyres and tubes was admissible, and whether the credit attributable to the inputs contained in the resulting waste was recoverable.

Analysis: Cut tyres and tubes generated in the course of manufacture were treated as waste and scrap rather than as finished excisable products. The reasoning proceeded on the footing that such waste does not emerge from a separate process of manufacture producing a new and distinct article, and that defective or unusable goods arising during manufacture take the character of waste or by-product. On that basis, the credit on inputs used in the manufacture was not to be denied merely because part of those inputs remained contained in the waste. The classification and credit position were also consistent with the trade notice clarifying that cut tyres and tubes, being not usable as such and disposed of as waste and scrap, fell within the relevant tariff entry and attracted the protection of Rule 57D(1).

Conclusion: MODVAT credit on the inputs was admissible, and no recovery of credit attributable to the inputs contained in the waste was warranted.

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