Modvat credit on bottle breakage cannot be reversed when shortages stay within normal industrial limits and lack evidence of excess waste.

Modvat credit on glass bottles could not be reversed merely because some bottles were found short, since breakage during manufacture was treated as an accepted incident of the process. The breakage in the unit was found to be below the industrial average and not shown by material evidence to be excessive or abnormal. In that situation, strict proof of each broken bottle was held unnecessary, and the Revenue could not characterise the shortage as excessive waste. The demand for reversal of credit was therefore not sustainable.

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Issues: Whether Modvat credit was liable to be reversed on glass bottles found short on the ground that they were not actually used in manufacture but were cleared as such.

Analysis: Breakage of bottles during manufacture was treated as an accepted phenomenon, and the extent of breakage was held to vary with the nature of the unit, manpower, machinery efficiency, and bottle quality. The breakage shown in the present case was found to be below the industrial average and, therefore, not abnormal. In such circumstances, strict proof of each broken bottle was held unnecessary, and the Revenue's attempt to treat the shortage as excessive waste was found unsupported by material.

Conclusion: The demand for reversal of Modvat credit was not sustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: Where input breakage during manufacture is within a reasonable industrial norm and is not shown to be excessive by material evidence, Modvat credit cannot be denied or reversed merely on the basis of shortage.

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