Marketability and further manufacture: cutting thermal insulation blocks to customer size was treated as manufacture, with waste covered under Rule 57D(1).

Cutting thermal insulation blocks into smaller sizes to satisfy customer specifications and make the product marketable was treated as a further process of manufacture, because marketability remained a relevant test in determining when manufacture was complete. Waste generated during that cutting process was regarded as waste arising in the course of manufacture and therefore fell within Rule 57D(1). On that basis, denial of Modvat credit on the destroyed waste was not justified.

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Issues: Whether cutting thermal insulation blocks into smaller sizes to meet customer specifications and make them marketable amounts to manufacture, and whether waste arising in that process is covered by Rule 57D(1) so that denial of Modvat credit on such waste is justified.

Analysis: The dispute turned on whether the blocks had reached a final stage of manufacture when first produced in standard sizes, or whether the subsequent cutting into smaller sizes constituted a further manufacturing process. The Tribunal held that the cutting was undertaken to make the product marketable and according to buyer specifications, and that marketability is a relevant test in determining manufacture. Waste arising during such cutting was treated as waste arising in the course of manufacture, bringing it within Rule 57D(1).

Conclusion: Cutting the thermal insulation blocks into smaller sizes was a process of manufacture, and the waste generated in that process was governed by Rule 57D(1); denial of Modvat credit on the destroyed waste was not justified.

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