MODVAT credit on broken glass bottles retained where waste arose during packing and processing, not excluded from the scheme.

MODVAT credit on glass bottles used in packing was not to be denied merely because the bottles broke during use and became scrap. The Tribunal treated the use of bottles in the manufacturing and packing process as part of "processing" under Rule 57F(4), so the broken pieces were waste arising from that processing. It also applied Rule 57D, under which credit cannot be varied simply because part of the inputs ends up in waste, refuse, or by-product during manufacture. On that basis, broken glass bottles remained within the MODVAT framework and the assessee could retain the credit.

---

---

Issues: Whether MODVAT credit taken on glass bottles that broke during use in the manufacturing and packing process could be denied or reversed on the footing that the broken bottles were not eligible inputs or that the resulting scrap was outside the MODVAT scheme.

Analysis: The glass bottles had admittedly been received in the factory, credit had already been taken, and they were used in relation to manufacture of the finished product. The Tribunal treated the use of bottles for packing within the manufacturing process as falling within the expression "processing" in Rule 57F(4), and held that the broken pieces constituted waste arising during such use. Rule 57F(4) dealt with removal or destruction of waste arising from processing of inputs, while Rule 57D expressly provided that credit shall not be denied or varied merely because part of the inputs is contained in waste, refuse, or by-product arising during manufacture. On that basis, the Tribunal accepted that the broken glass bottles were covered by the MODVAT provisions.

Conclusion: The Revenue's challenge failed and the assessee was entitled to retain the MODVAT credit on the broken glass bottles.

---