Modvat credit on inputs in manufacturing waste requires scrutiny of excisability, marketability and suppression before reversal.

Modvat credit on inputs embedded in waste generated during manufacture could not be denied merely because the inputs were found in waste, refuse or by-product under Rule 57D(1). However, because the waste had been cleared and sold, the Tribunal said its excisability, marketability and treatment under Rule 57F(4) required proper examination, and the record was also insufficient on suppression and limitation. The order reversing credit was therefore set aside and the matter remanded to the original authority for fresh consideration after hearing the assessee.

---

---

Issues: Whether reversal of Modvat credit could be sustained in respect of inputs contained in waste generated during manufacture, and whether the matter required reconsideration in view of the absence of findings on excisability, marketability, and suppression.

Analysis: The Tribunal noted that the impugned order did not record a finding on the assessee's specific plea that the waste was not excisable. It further observed that Rule 57D(1) of the Central Excise Rules, 1944 indicates that Modvat credit on inputs is not to be denied or varied merely because part of the input is contained in waste, refuse, or by-product arising in manufacture. At the same time, since waste had admittedly been cleared and sold, the question of its excisability and marketability, as well as the proper treatment of such waste under Rule 57F(4), required examination. The Tribunal also found the record insufficient to decide the allegation of suppression and limitation.

Conclusion: The order reversing credit was set aside and the matter was remanded to the original authority for fresh consideration after giving the assessee a reasonable opportunity of hearing.

---