Modvat credit on inputs in manufacturing waste remains protected where waste arises in production and no statutory waste limit applies.

Rule 57D protected Modvat credit on inputs contained in waste generated during manufacture of dutiable BOPP films. Credit could not be denied merely because the wastage percentage was high, since the waste arose in the normal course of manufacture, the department was aware of it, and there was no finding of clandestine removal or any statutory limit on waste quantum. The credit attributable to inputs in such waste therefore remained available for regranulation-related waste, and the denial of credit on the ground of high wastage was not sustainable.

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Issues: Whether credit under Rule 57D of the Central Excise Rules, 1944 was available in respect of inputs contained in waste generated during manufacture of BOPP films, notwithstanding the high percentage of waste and its use for regranulation.

Analysis: The final product, BOPP films, was admittedly dutiable. The denial of Modvat credit was founded only on the high percentage of wastage. The record showed that waste arose in the course of manufacture and that the department was aware of such waste. There was no finding that the inputs were used to produce any clandestinely removed goods, and the rule did not contain any limitation based on the quantum of waste generated. On that basis, the credit attributable to inputs contained in the waste was held to remain protected by Rule 57D.

Conclusion: Rule 57D applied, and the denial of credit on the ground of high wastage was not sustainable; the Revenue's appeals failed.

Ratio Decidendi: Credit on inputs contained in waste arising during manufacture is not denied under Rule 57D merely because the quantum of waste is high, where the final product is dutiable and the waste arises in the course of manufacture.

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