Modvat credit on inputs remains available for scrap arising in manufacture, and the extended limitation period requires proven suppression.

Modvat credit on glass bottles could not be denied merely because part of the inputs became waste, refuse or scrap during manufacture; Rule 57D(1) protected credit on inputs even where the unutilised or damaged portion arose in the manufacturing process, and the assessee succeeded on this issue. The extended period of limitation was also unavailable because suppression or misstatement was not established, as the excise record already reflected production and loss figures and the alleged wastage was not newly discovered before the notices; the demand was therefore time-barred.

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Issues: (i) Whether Modvat credit could be denied on glass bottles that were not fully utilised in the manufacture of final products and were cleared as scrap or wastage; (ii) Whether the demand was barred by limitation on the ground that suppression or misstatement was not established.

Issue (i): Whether Modvat credit could be denied on glass bottles that were not fully utilised in the manufacture of final products and were cleared as scrap or wastage.

Analysis: Rule 57D(1) of the Central Excise Rules, 1944 protects credit on inputs from being denied merely because part of the inputs is contained in waste, refuse or by-product arising during manufacture. The unutilised or damaged portion of the glass bottles was treated as waste arising in the course of manufacture, and the Tribunal's earlier view on similar bottling inputs reinforced this interpretation.

Conclusion: Modvat credit could not be denied on the ground that some of the glass bottles became waste or scrap during the manufacturing process; the issue was decided in favour of the assessee.

Issue (ii): Whether the demand was barred by limitation on the ground that suppression or misstatement was not established.

Analysis: The record showed that Central Excise officers were checking production and loss figures, and the alleged wastage was not something discovered for the first time before issuance of the notices. In these circumstances, the ingredients necessary to invoke suppression or misstatement for the extended period were not made out.

Conclusion: The demand was hit by time bar and the extended period was not available to the Revenue; this issue was also decided in favour of the assessee.

Final Conclusion: The revenue's challenge failed on both merits and limitation, and the order granting relief to the assessee was sustained.

Ratio Decidendi: Credit on inputs cannot be denied merely because part of the inputs becomes waste, refuse or by-product during manufacture, and the extended period of limitation cannot be invoked absent proved suppression or misstatement.

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