Modvat credit on PVC inputs survives where manufacturing yields cable scrap treated as waste and scrap, not a separate final product.

Modvat credit on polyvinyl chloride compound used in cable manufacture could not be denied merely because cable scrap emerged and was cleared without duty. The scrap was treated as waste and scrap, not as a separate final product, and Rule 57D(1) protected input credit even where waste, refuse or by-product arose in the manufacturing process. The view that no scrap or by-product could result from processing inputs was rejected, and the classification of the cleared material as waste and scrap supported the assessee's entitlement to credit.

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Issues: Whether Modvat credit on polyvinyl chloride compound used in the manufacture of cable scrap classifiable as waste and scrap could be denied when such scrap was cleared without payment of duty.

Analysis: The scrap arising from processing of polyvinyl chloride compound was treated as waste and scrap and not as a separate final product for the purpose of denying credit. Rule 57D(1) protected credit on inputs used in manufacture of final products notwithstanding emergence of waste, refuse, or by-product. The reasoning that no scrap or by-product could ever arise from processing inputs was rejected, and the classification of the goods as waste and scrap supported the assessee's case.

Conclusion: The Modvat credit could not be denied, and the issue was decided in favour of the assessee.

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