Modvat credit on broken glass bottles survives when scrap arises during manufacture and Rule 57D(1) applies.

Rule 57D(1) protected Modvat credit on glass bottles used in manufacture where the show-cause notice itself alleged that breakage occurred during the production process. Glass scrap arising from such use was treated as not separately dutiable and outside separate tariff coverage, so no reversal of credit was warranted. On that basis, the demand for recovery of Modvat credit was held unsustainable and the assessee's entitlement to retain the credit was upheld.

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Issues: Whether the department was entitled to recover Modvat credit on glass bottles alleged to have been broken during manufacture of the final product.

Analysis: The notice itself alleged that more bottles were issued than the batch size to maintain continuity in production and that breakage could occur during manufacture. On that basis, the Tribunal found no need for separate proof of the exact stage of breakage. It held that Rule 57D(1) applied, since glass scrap arising from the use of bottles in the course of manufacture did not attract excise duty and had no separate tariff coverage. The Tribunal also relied on the orders of the lower authorities and the supporting case law and Ministry letter referred to in the record.

Conclusion: The demand for reversal of Modvat credit was not sustainable and the department's appeal failed.

Final Conclusion: The assessee's entitlement to retain the Modvat credit was upheld and the recovery attempt was rejected.

Ratio Decidendi: Where the show-cause notice itself alleges breakage of input containers during manufacture, Rule 57D(1) protects the credit and scrap arising in the course of manufacture does not justify reversal of Modvat credit.

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