Modvat credit cannot be denied for waste generated during manufacture where inputs are used in the production process.

Rule 57D(1) protects Modvat credit where waste, refuse or a product arises during manufacture of the final product. The phrase "during the manufacture" is treated broadly to cover waste generated at any stage of the manufacturing process, because manufacture may occur over several stages rather than instantaneously. On that basis, credit cannot be denied merely because a portion of the inputs used in pharmaceutical production became waste in the course of manufacture, and the assessee remains entitled to the credit.

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Issues: Whether Modvat credit could be denied on the portion of inputs used in the manufacture of pharmaceutical products that became waste during the manufacturing process.

Analysis: Rule 57D(1) protects credit where any waste, refuse, or product arises during the manufacture of the final product. The phrase "during the manufacture" is broad enough to cover waste generated at any stage of the manufacturing process, since manufacture is not necessarily instantaneous and may extend over several stages. Once it was accepted that the waste arose in the course of manufacturing, credit could not be denied on that basis.

Conclusion: Modvat credit could not be denied merely because the inputs resulted in waste during manufacture, and the assessee was entitled to the credit.

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