Intermediate product treatment for Modvat credit where manufacturing waste is reused as input in a second final product.

Off-cuts and parings generated in manufacturing PVC doors and windows were treated as intermediate products when they were crushed, converted into powder, and used with chemicals to make PVC Fire Retardant Compound. Although the material could be described as waste and scrap in relation to the first product, it also functioned as an input for a second final product. On that basis, it was considered eligible for Modvat credit, and credit could not be denied merely because the material arose as waste in the earlier manufacturing process.

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Issues: Whether off-cuts and parings arising in the manufacture of PVC doors and windows from PVC profile shapes were to be treated only as waste and scrap, or whether they were intermediate products used as inputs for the manufacture of PVC Fire Retardant Compound, so as to qualify for Modvat credit under the relevant rules.

Analysis: The manufacture of PVC Fire Retardant Compound involved crushing the off-cuts and parings into powder and mixing that powder with chemicals. The material thus arose in the course of manufacture of PVC doors and windows, but was subsequently used in the manufacture of another final product. On that basis, the off-cuts and parings could be regarded as waste and scrap in relation to one product and at the same time as intermediate products for another. The issue was held to be covered by the Tribunal's earlier decision in the appellants' own case.

Conclusion: The off-cuts and parings were intermediate products eligible for treatment as inputs, and Modvat credit could not be denied on that ground.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Material arising during manufacture, if subsequently used as input in the manufacture of another final product, may constitute an intermediate product for the purposes of Modvat credit even though it is also describable as waste or scrap in relation to the first product.

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