Modvat credit and pre-manufacturing testing waste: Rule 57D(1) did not cover destructive input testing, and the amendment was prospective.

Rule 57D(1) protected Modvat credit only where waste, refuse or by-products arose during manufacture of the final product; destructive testing of inputs before they were issued for manufacture occurred at a preliminary stage and did not qualify, so credit was not available on that basis. The November 1993 amendment broadening the rule to cover inputs that became waste in or in relation to manufacture introduced a substantive enlargement, not a mere clarification, and therefore did not operate retrospectively. On that analysis, pre-manufacturing destruction of inputs remained outside the earlier rule, and no retrospective relief arose from the amendment.

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Issues: (i) Whether waste or scrap generated by destructive testing of inputs before they were issued for manufacture was covered by Rule 57D(1) so as to preserve Modvat credit; (ii) Whether the November 1993 amendment to Rule 57D(1) enlarging its scope operated retrospectively.

Issue (i): Whether waste or scrap generated by destructive testing of inputs before they were issued for manufacture was covered by Rule 57D(1) so as to preserve Modvat credit.

Analysis: Rule 57D(1) protected credit where waste, refuse or a by-product arose during manufacture of the final product. The testing in question was undertaken to determine whether a batch of components was suitable for manufacture, and the components were not issued for manufacture until they passed the test. The destructive testing therefore occurred at a stage anterior to manufacture and did not arise in the course of manufacture. The decisions relied upon by the appellant concerned situations where damage or waste occurred during manufacture or after the manufacturing process had substantially commenced, and were therefore distinguishable. Rule 57F(2) also did not assist because it contemplated inputs sent out for testing and returned to the factory for further use; it did not cover inputs consumed or destroyed in the process.

Conclusion: Rule 57D(1) did not apply to the waste arising from pre-manufacturing destructive testing, and the credit was not allowable on that basis.

Issue (ii): Whether the November 1993 amendment to Rule 57D(1) enlarging its scope operated retrospectively.

Analysis: The amendment inserted words broadening the rule to cover inputs that had become waste in or in relation to manufacture. The addition introduced a wider substantive reach and was not merely explanatory. An amendment that enlarges the scope of the rule cannot be treated as clarificatory merely because it may afford relief in similar situations; its language showed a deliberate extension of coverage.

Conclusion: The amendment was not retrospective.

Final Conclusion: The appellant was not entitled to Modvat credit on inputs destroyed in pre-manufacturing testing, and the subsequent amendment did not afford retrospective relief.

Ratio Decidendi: Rule 57D(1) applies only to waste, refuse or by-products arising during manufacture of the final product, not to destruction of inputs in a preliminary testing stage before manufacture commences, and a substantive enlargement of that rule operates prospectively unless clearly made retrospective.

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