MODVAT credit on whole input allowed where part of the input becomes spent acid or waste during manufacture.

MODVAT credit on notified inputs under Rule 57A was not limited to the exact quantity physically consumed in manufacture, and the scheme did not require declaration of a precise consumption percentage. The credit operated as a pool, so one-to-one correlation between input and output was not mandatory. Rule 57F did not require reversal merely because part of the input emerged as spent acid or waste during processing. On that basis, credit taken on the entire input was treated as valid and restriction of credit to 49% was not sustainable.

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Issues: Whether MODVAT credit on Oleum was admissible in full when only part of the input was consumed in manufacture and the balance emerged as spent acid.

Analysis: The MODVAT scheme under Rule 57A allowed credit on notified inputs used in or in relation to the manufacture of notified final products, upon the prescribed declaration under Rule 57G. The Rules did not require credit to be restricted only to the portion of input actually consumed, nor did they require declaration of exact consumption percentage. Rule 57F dealt with utilisation of credit and also provided for treatment of inputs cleared from the factory or of waste arising from processing, but it did not require reversal of credit merely because part of the input emerged as spent acid. The scheme contemplated a credit pool and did not prescribe one-to-one correlation between input and output.

Conclusion: MODVAT credit was correctly taken on the entire input, and the demand raised by restricting credit to 49% was not sustainable.

Ratio Decidendi: Where notified inputs are validly taken into MODVAT credit and used in or in relation to manufacture, the credit is not confined to the exact quantity physically consumed, and no reversal is required merely because part of the input emerges as by-product or waste.

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