Modvat credit on scrap from intermediate rubberised fabric remains admissible when the scrap arises in tyre manufacture.

Modvat credit on inputs remained available where scrap of rubberised fabric arose during manufacture of tyres through an intermediate product process. Rule 57D applied to waste, refuse or by-products generated in the course of making the final product, and credit could not be denied merely because the rubberised fabric was not an independent final product. The denial of credit was therefore incorrect and credit was admissible.

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Issues: Whether Modvat credit on inputs contained in scrap of rubberised fabric was allowable when the fabric was manufactured only as an intermediate product for use in the manufacture of tyres.

Analysis: Rule 57D covered waste, refuse or by-products arising during the manufacture of the final product. The rubberised fabric was produced solely for use in making tyres and was not cleared as an independent final product. The scrap therefore arose in the course of manufacture of the final product, and the credit could not be denied merely because the immediate product was an intermediate one.

Conclusion: Modvat credit was admissible and the denial of credit was incorrect.

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