Modvat credit on scrap denied where aluminium scrap was clearly recognisable as non-duty paid under Rule 57G.

Modvat credit was held inadmissible on aluminium scrap generated at a service centre outside the factory because the scrap itself had not suffered duty. Scrap arising from dismantling compressor parts and lacking duty incidence was treated as clearly recognisable as non-duty paid, bringing it outside Rule 57G eligibility. Notification No. 185/88 did not assist the claimant because the relevant scrap was not regarded as duty-paid material. The stated principle is that scrap generated from goods that have not themselves suffered duty is not eligible for Modvat credit.

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Issues: Whether Modvat credit was admissible on aluminium scrap generated at the appellant's service centre and whether such scrap could be treated as clearly recognisable as non-duty paid.

Analysis: The scrap was generated at the service centre outside the factory and it was not disputed that the scrap had not suffered duty. The eligibility claim under Rule 57G was therefore examined on the footing that the scrap itself had emerged from dismantling compressor parts and was not duty paid. On these facts, the scrap fell within the expression clearly recognisable as non-duty paid. The reference to Notification No. 185/88 did not assist the appellant because the scrap generated from the compressors was treated as scrap not bearing duty incidence.

Conclusion: Modvat credit on the aluminium scrap was not admissible and the issue was decided against the assessee.

Ratio Decidendi: Scrap generated from goods which has not itself suffered duty is clearly recognisable as non-duty paid and is not eligible for Modvat credit under Rule 57G.

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