MODVAT credit for re-rollable scrap depends on actual factory use, not on the supplier's tariff description.

MODVAT credit on re-rollable waste or scrap falling under Chapter Heading 7204 was analysed by reference to the end-use test under Rule 57A. The controlling enquiry is whether the notified input is actually used in or in relation to manufacture in the recipient factory and whether the scheme conditions are otherwise satisfied. A tariff description suggesting waste or scrap does not, by itself, exclude eligibility. Where the material received is re-rollable and its use for re-rolling in the assessee's factory is established, credit remains admissible despite the supplier's description or heading.

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Issues: Whether MODVAT credit could be denied on re-rollable material described as waste or scrap falling under Chapter Heading 7204, and whether eligibility had to be determined at the recipient manufacturer's end on the basis of intended use in or in relation to manufacture.

Analysis: The input and finished products were notified under Rule 57A. The relevant enquiry under the MODVAT scheme was whether the inputs were to be used in or in relation to the manufacture of the finished product and whether the other scheme requirements were met. The tariff description of waste and scrap did not support a restrictive reading that only scrap fit for remelting could qualify. The decisive factor was the actual nature of the material received and its use in the assessee's factory for re-rolling. If the material was re-rollable and its use for re-rolling was established, eligibility could not be denied merely because the supplier's description or tariff heading suggested scrap.

Conclusion: MODVAT credit could not be denied merely because the inputs were described as waste or scrap under Chapter Heading 7204; if the material was re-rollable and used for re-rolling in the assessee's factory, the assessee was entitled to credit.

Final Conclusion: The appeal succeeded and the denial of MODVAT credit was set aside in respect of re-rollable materials satisfying the end-use requirement.

Ratio Decidendi: For MODVAT eligibility, the controlling test is whether the notified input is actually used in or in relation to manufacture in the recipient's factory, not whether the tariff description of the material suggests that it is fit only for remelting.

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