Modvat credit on inputs need not be reversed for exempt plastic scrap cleared without duty under the relevant exemption notification.

Modvat credit on duty-paid PVC compound was not required to be reversed when plastic waste and scrap arising during manufacture were cleared without duty under Notification No. 53/88. The exemption applied to waste and scrap of plastics arising from goods under Chapter 39 on which duty had been paid, and the notification contained no condition denying exemption because credit had been taken on inputs. Rule 57D supported this position by providing that credit need not be varied merely because waste, scrap, or intermediate products were exempt, and Rule 57F did not prevent utilisation of the credit in relation to the final products. Clearance of the exempt scrap without duty was therefore permissible.

---

---

Issues: Whether Modvat credit taken on duty-paid PVC compound was required to be reversed when waste and scrap of plastics arising in manufacture were cleared without payment of duty under Notification No. 53/88.

Analysis: The exemption notification covered waste and scrap of plastics arising from goods falling under Chapter 39 on which duty had been paid, and it contained no condition denying the exemption merely because Modvat credit had been taken on the inputs. The waste and scrap arose in the course of manufacture of the final product, and Rule 57D of the Central Excise Rules, 1944, provided that credit need not be varied merely because waste, scrap, or intermediate products were exempted. Rule 57F also did not assist the Revenue, as the credit on inputs could be utilised in relation to the clearance of final products covered by the Modvat declaration.

Conclusion: Modvat credit was not liable to be reversed and the clearance of the exempt plastic scrap without payment of duty was permissible. The appeal was therefore unsustainable.

---