Modvat credit on returned defective polyester films was allowed where recycled material underwent fresh manufacture.

Modvat credit under Rule 57A was admissible on defective polyester films returned by customers for reprocessing, because the returned goods were subjected to manufacture again and fresh polyester film was produced from the recycled material. The issue was treated as covered by Larger Bench decisions applying the same principle to defective final products returned to the manufacturer, and that ratio was held directly applicable to these facts.

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Issues: Admissibility of Modvat credit under Rule 57A of the Central Excise Rules, 1944 on defective/rejected polyester films manufactured and cleared by the assessee and returned by customers for reprocessing.

Analysis: The issue was held to be covered by Larger Bench decisions which treated defective final products returned to the manufacturer as eligible for Modvat credit where the returned goods were subjected to manufacture again. The returned polyester films were recycled and fresh polyester film was manufactured from the recycled material, thereby involving a fresh process of manufacture. The earlier Larger Bench ratio was held directly applicable to the facts.

Conclusion: Modvat credit was admissible to the assessee on the returned defective polyester films.

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