Modvat credit on input used in manufacture was protected; reversal was not justified for waste or refuse arising during process.

Rule 57D(1) protected Modvat credit where inputs were used in the manufacture of the final product, and credit could not be denied merely because part of the input ended up in waste, refuse or a by-product. Oleum was used in manufacturing the final product, and Spent Acid was treated as refuse or scum rather than a by-product. The departmental instruction did not displace Rule 57D, and the cited High Court view supported the assessee. Reversal of Modvat credit was therefore not warranted.

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Issues: Whether Modvat credit on Oleum was liable to be reversed to the extent it went into the manufacture of Spent Acid.

Analysis: Rule 57D(1) protected credit where inputs were used in the manufacture of the final product and no denial or variation of credit could be made merely because part of the input was contained in waste, refuse or a by-product arising during manufacture. On the facts, Oleum was used in the manufacture of the final product, and Spent Acid was treated as refuse or scum rather than a by-product. The reliance placed on the earlier departmental instruction did not dislodge the applicability of Rule 57D, and the cited High Court view supported the assessee's position.

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

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