Modvat credit on re-rollable scrap depends on actual use in manufacture, not the supplier's description of the goods.

Modvat credit on re-rollable waste and scrap cannot be denied merely because the supplier described the goods as scrap. The relevant test is whether the recipient established that the inputs were received under Rule 57G and were actually used in or in relation to manufacture. Here, the assessee consistently stated that the materials were rolled in its factory for making final products, and the demand was supported by its own statutory records. On that basis, credit remained admissible and the denial was unsustainable.

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Issues: Whether Modvat credit could be denied on waste and scrap received as inputs by a re-rolling mill on the ground that the goods were described as scrap and whether the respondents had established actual use of the inputs in the manufacture of final products.

Analysis: The respondents had declared the relevant waste and scrap as inputs under Rule 57G and had consistently maintained, both in reply to the show cause notice and before the authorities, that the materials received were rolled in their factory for manufacture of final products. The demand itself was based on the respondents' statutory records. The earlier Tribunal ruling applied the principle that eligibility to Modvat credit has to be examined at the recipient's end on the basis of use in or in relation to manufacture, and that credit cannot be denied merely because the supplier described the material as scrap, so long as the recipient establishes that the material was re-rollable and actually used for re-rolling.

Conclusion: Modvat credit was admissible, and the denial of credit was not sustainable.

Ratio Decidendi: Where inputs are re-rollable materials and the recipient establishes their use in or in relation to manufacture, Modvat credit cannot be denied merely because the supplier described them as waste or scrap.

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