Modvat credit on duty-paid inputs is not denied merely because a by-product emerges during manufacture.

Modvat credit on duty-paid sulphuric acid used in manufacturing acid slurry could not be denied merely because spent sulphuric acid emerged as a by-product. The liberal scope of Rule 57A of the Central Excise Rules, 1944 treated "used" input as distinct from complete consumption, so credit remained admissible where the input was actually employed in production and no excess or ineligible use was shown. On that reasoning, recovery of the credit was not sustainable and the assessee's entitlement was upheld.

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Issues: Whether Modvat credit taken on sulphuric acid was recoverable or deniable merely because spent sulphuric acid emerged as a by-product in the manufacture of acid slurry.

Analysis: Sulphuric acid was an input used in the manufacture of acid slurry, and spent sulphuric acid emerged only as a by-product in the process. The liberal scheme of Rule 57A of the Central Excise Rules, 1944 permitted credit on duty-paid inputs actually used in manufacture, and the credit could not be denied or recovered merely because the input was not wholly exhausted or because a by-product was generated. The reasoning was supported by the principle that the word "used" in the Modvat context is not equivalent to "consumed" in the sense of total exhaustion of the input.

Conclusion: The Modvat credit was rightly taken and its recovery was not sustainable; the issue was decided against the Revenue and in favour of the assessee.

Ratio Decidendi: Credit on a duty-paid input cannot be denied merely because a by-product emerges in manufacture, so long as the input is used in the production of the final product and no excess or ineligible use is shown.

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