Modvat credit on zinc waste products protected where ash and dross emerged as by-products and were cleared under exemption.

Modvat credit on zinc was not required to be reversed merely because zinc ash and zinc dross arose during manufacture and were cleared under exemption. The inputs were partly contained in waste or by-product, so Rule 57D(1) protected the credit and it could not be varied on the ground that the waste product itself was exempt. The later amendment to the exemption notification was treated as prospective only, and its new condition did not govern earlier clearances. Rule 57C was therefore inapplicable on these facts, and reversal of credit was unsustainable.

---

---

Issues: Whether Modvat credit taken on zinc was required to be reversed when zinc ash and zinc dross arose during manufacture and were cleared under exemption.

Analysis: Zinc ash and zinc dross emerged in the course of manufacture of the final product and were in the nature of waste or by-product. Rule 57D(1) protected Modvat credit where part of the input is contained in waste, refuse, or by-product, and such credit was not to be varied merely because the waste product was exempt. The later amendment to the exemption notification did not evince any retrospective intent, and the condition introduced by the amendment could not govern the earlier clearances. The earlier view that Rule 57C required reversal was therefore not applicable on these facts.

Conclusion: The demand for reversal of Modvat credit was unsustainable and the assessee succeeded.

---