Modvat credit on common inputs need not be apportioned for by-product emergence where the final product is notified.

Rule 57A allowed Modvat credit on inputs used in relation to a notified final product, and Rule 57D protected credit from reduction merely because part of the inputs emerged in waste, refuse, or a by-product during manufacture. On that reading, Sodium Sulphate was only a by-product arising in the manufacture of Viscose Staple Fibre, and the existence of that by-product did not require apportionment of credit on Caustic Soda Lye. Once Viscose Staple Fibre was within the Modvat scheme, the earlier allocation of credit made when it was not a notified product did not govern the later position. Full credit remained available for the notified final product without re-apportionment.

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Issues: Whether Modvat credit taken on the common input Caustic Soda Lye was required to be apportioned between the by-product Sodium Sulphate and the notified final product Viscose Staple Fibre, or whether the full credit could be utilised for payment of duty on Viscose Staple Fibre under Rule 57D.

Analysis: Rule 57A permits credit on inputs used in or in relation to notified final products, while Rule 57D(1) provides that credit shall not be denied or varied merely because part of the inputs is contained in waste, refuse, or a by-product arising during manufacture. Sodium Sulphate was treated as a by-product arising in the course of manufacture of Viscose Staple Fibre, and once Viscose Staple Fibre itself was brought within the Modvat scheme, the earlier credit allocation made when it was not a notified product did not control the later position. A harmonious reading of the Modvat rules showed that the existence of the by-product did not justify reduction or re-apportionment of the credit otherwise available on the notified final product.

Conclusion: The assessee was entitled to utilise the full Modvat credit on Caustic Soda Lye for Viscose Staple Fibre without apportionment for the by-product Sodium Sulphate.

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