Modvat credit on inputs was preserved where plastic waste and scrap were exempt from duty under the notification.

Duty-paid inputs used to manufacture plastic sheets did not lose Modvat credit merely because waste and scrap arose in the process and were cleared under the plastic waste exemption. The Tribunal's view, applying Rule 57D, was that credit is not denied or reversed where part of the input ends up in exempt waste or by-product unless the scheme or governing provision specifically requires reversal. The exemption for waste and scrap of plastics was therefore available, and Modvat credit on the inputs was not liable to be denied or reversed.

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Issues: Whether waste and scrap of plastics cleared under Notification No. 53/88 were entitled to exemption and whether Modvat credit on inputs contained in such waste and scrap could be denied or required to be reversed under Rule 57C.

Analysis: The inputs used in the manufacture of plastic sheets were duty paid, and the waste and scrap arising in the course of manufacture fell under the tariff heading for plastics waste. The exemption notification covered waste and scrap of plastics, and the Tribunal followed its earlier view that such waste could not be denied the benefit merely because Modvat had been availed on the inputs. Rule 57D supported the view that credit was not to be denied where part of the input ended up in waste or by-product, and the scheme did not warrant reversal merely because the waste was cleared exempt or at nil duty.

Conclusion: The exemption was available and Modvat credit was not liable to be denied or reversed. The appeal was against the assessee.

Ratio Decidendi: Where duty-paid inputs are used in the manufacture of dutiable final products and waste or scrap emerges in the process, exemption to such waste does not by itself justify denial or reversal of Modvat credit unless the governing provisions specifically so require.

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