Modvat credit on rejected vacuum flasks sent for further processing was upheld; they were not treated as scrap.

Rejected stainless steel vacuum flasks sent to a job worker under Rule 57F(3) of the Central Excise Rules, 1944 were not treated as scrap merely because they were not the final product. Applying the Larger Bench ruling in Wyeth Laboratories Ltd., the Tribunal noted that waste or rejected material generated in manufacture and sent for further processing or remelting retains its character under the Rule 57F scheme. On that basis, the rejected flasks were held not liable to duty as scrap, and Modvat credit was found admissible.

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Issues: Whether rejected stainless steel vacuum flasks cleared to a job worker under Rule 57F(3) of the Central Excise Rules, 1944 were scrap liable to duty, or were eligible for Modvat credit under the relevant Rule 57F scheme.

Analysis: The impugned order turned on the character of the rejected flasks and the scope of Rule 57F(3). The Tribunal followed the Larger Bench ruling in Wyeth Laboratories Ltd., which held that waste or rejected material generated in the course of manufacture and sent for further processing or remelting cannot be treated as scrap merely because it is not the final product. On that reasoning, the rejected flasks were not liable to be classified as scrap for denial of Modvat credit.

Conclusion: The issue was decided in favour of the assessee, and Modvat credit was held to be admissible.

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