Duty-paid inputs and waste exemption: Modvat credit cannot be read into the notification absent an express restriction.

Waste, parings and scrap arising during manufacture of polyurethane foam sheets were held eligible for exemption under Notification No. 222/86-C.E. The condition that the waste must arise from goods on which excise duty or additional duty had already been paid was treated as satisfied because the underlying raw materials were duty-paid, even though the waste emerged through an intermediate captively consumed product. The notification contained no express bar where Modvat credit had been taken, so no such restriction could be implied. The exemption was therefore upheld and the Revenue's objection based on captive consumption and Modvat credit failed.

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Issues: Whether waste, parings and scrap arising during manufacture of polyurethane foam sheets from polyurethane foam cakes were entitled to exemption under Notification No. 222/86-C.E., and whether the benefit was denied because the cakes were captively consumed under Notification No. 217/86-C.E. or because Modvat credit had been availed on inputs.

Analysis: The waste in question arose from polyurethane foam cakes manufactured from duty-paid polyol and isocyanide, and the cakes were only intermediate products used in the manufacture of the final articles. The condition in the exemption notification requiring the waste to arise from goods on which excise duty or additional duty had already been paid was satisfied in substance, because the raw materials had suffered duty and the captively consumed intermediate product did not alter the duty-paid character relevant to the exemption. The absence of any specific condition in Notification No. 222/86-C.E. barring the exemption where Modvat credit had been taken also meant that such a restriction could not be imported into the notification. The reasoning adopted in earlier decisions on duty-paid inputs and exemption notifications supported this view.

Conclusion: The waste, parings and scrap were eligible for exemption under Notification No. 222/86-C.E., and the Revenue's objection based on captive consumption and Modvat credit failed.

Final Conclusion: The assessee's claim for exemption was upheld and the Revenue's appeal was rejected.

Ratio Decidendi: Where an exemption notification for waste and scrap requires that the goods arise from inputs on which duty has already been paid, that condition is satisfied by duty-paid raw materials used to manufacture an intermediate product from which the waste emerges, and a Modvat-related condition cannot be read into the notification unless expressly provided.

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