Modvat credit on inputs in nil-duty by-product need not be reversed when the cleared item is only incidental waste.

Modvat credit embedded in plastic waste and scrap cleared at nil duty was not required to be reversed where the waste arose incidentally during manufacture and was not the assessee's final product. Rule 57C was held inapplicable because the clearance at nil rate concerned a by-product, and the protective scope of Rule 57D supported retention of input credit attributable to that by-product. The proportionate credit reversal was therefore not warranted, and the Revenue's challenge failed.

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Issues: Whether Modvat credit attributable to inputs contained in plastic waste and scrap cleared at nil duty was required to be reversed under Rule 57C of the Central Excise Rules, 1944.

Analysis: The clearance in question related to plastic waste and scrap arising during manufacture, which was treated as a by-product and not as the final product of the assessee. The earlier Tribunal view relied upon by the appellate authority held that Rule 57C does not apply where the item cleared at nil rate is not the declared final product but only an incidental by-product. The reasoning also drew support from the protective scope of Rule 57D in relation to input credit embedded in by-products.

Conclusion: Rule 57C was not attracted and reversal of proportionate Modvat credit was not warranted.

Final Conclusion: The appeal failed because the credit attributable to the waste and scrap cleared at nil rate remained protected, the impugned order was sustained, and the Revenue's challenge was rejected.

Ratio Decidendi: Credit on inputs contained in a by-product cleared at nil duty is not liable to reversal merely because the by-product itself is exempt or non-dutiable, where it is not the assessee's final product.

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