Modvat credit on composite cable scrap cannot be reduced by segregating insulation that becomes waste in manufacture.

Modvat credit was admissible on insulated cable waste and scrap received as a composite input, because duty had been paid on the input as such and the PVC insulation had no separate identity in the received material. Rule 57A allowed credit on inputs used in or in relation to manufacture, and Rule 57D(1) prevented denial or reduction of credit merely because part of the input became waste, refuse or by-product during manufacture. The melting and removal of insulation were treated as part of a continuous manufacturing process, so credit could not be restricted by segregating the non-usable constituent.

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Issues: Whether Modvat credit was admissible on insulated cable scrap taken as a composite input, notwithstanding that the PVC insulation portion was burnt away in the manufacturing process and did not itself form part of the final product.

Analysis: The declared input was waste and scrap of insulated cable and not aluminium scrap alone. The credit had been taken on the duty paid on the composite scrap as received, and the PVC portion had no separate identity in the input. Rule 57A permits credit on inputs used in or in relation to the manufacture of final products, and Rule 57D(1) bars denial or variation of credit merely because part of the input becomes waste, refuse, or by-product in the course of manufacture. The process of melting the cable scrap to remove the insulation was treated as part of a continuous manufacturing operation, not as a separate activity warranting compartmentalisation of the input for credit purposes.

Conclusion: Modvat credit was admissible on the entire quantity of insulated cable waste and scrap, and denial of credit on the ground that the PVC portion was not itself used in the final product was unsustainable.

Ratio Decidendi: Where a composite input is received and duty is paid on that input as such, credit cannot be restricted by segregating a non-usable constituent that becomes waste in the course of a continuous manufacturing process; Rule 57D protects the full credit.

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