MODVAT credit is admissible on the full quantity of Sulphuric acid used in the manufacture of detergents.

( 1 ) THE petitioner is engaged in the manufacture of acid slurry. It is not disputed that for the manufacture of acid slurry, sulphuric acid is used as input. During the process of manufacture of the acid slurry, contends the petitioner, a by-product is obtained known as spent sulphuric acid. On duty-paid input from May to October, 1991, the MODVAT Credit was taken in full by the petitioner while clearing the final product, that is, the acid slurry.

( 2 ) TAKING recourse to Rule 57-I of the Central Excise Rules, 1944 (briefly the Rules), impugned notice dated 28-11-1991 (Annexure 6 to the writ petition) was served on the petitioner calling upon it to show cause why MODVAT credit to the extent of Rs. 36,798/- should not be recovered from it. Brief reason for demanding the aforesaid amount given in the said notice, is that duty-paid input was not consumed in full in the manufacture of final product and that "the differential quantity is neither waste nor a product other than the said input except that it gets diluted and known as spent ACID. " The stand taken in the impugned notice is that the entire duty-paid input during the relevant period was not actually consumed in the final product and, therefore, the petitioner was not entitled to take MODVAT credit in respect of the spent acid, that is, the input which according to the respondents was not actually consumed in the final product. The notice further states that "the percentage of consumption of the said input as compared to the quantity issued on an average works out to 41. 76% and that remaining 58. 24% spent acid remained unconsumed, on which MODVAT credit was erroneously allowed to the petitioner. It is this mistake which is sought to be rectified by respondents under Rule 57-I of the rules.

( 3 ) IT is not disputed that the entire duty-paid input relevant for the purpose of this case was subjected to and applied in the manufacturing process. It is also not denied by the petitioner that during the manufacturing process of detergent, which the petitioner is manufacturing, when water is added to the mass, sulphuric acid layer is separated from the acid slurry and that results in what is called as the spent sulphuric acid or the spent acid.

( 4 ) THE question for consideration is whether on account of formation of spent acid during the manufacturing process, can it be said that the entire duty paid input was not used in the manufacture of final product? This is purely a legal question and, therefore, we heard the parties, though respondents simply served a show cause notice, which ordinarily is not interfered with under Article 226 of the Constitution, as against the show cause notice a petitioner has ample opportunity to have his say before the concerned Authority.

( 5 ) THE MODVAT Scheme provides for instant credit of the excise duty paid on inputs when used in or in relation to the manufacture of final product. No doubt the duty paid input, which is not used in the manufacturing process, would not be eligible for the MODVAT credit. To take modvat credit, the final product should be dutiable. Where the final product is exempt from excise duty, no credit of the duty-paid on the inputs would be available. Let us proceed to find out whether on the facts and the circumstances of the case, it can be said that the entire relevant duty paid input was used in the manufacture of the final product. The MODVAT Scheme does not emphasise that during the manufacturing process, the entire duty-paid input must be actually consumed, but the emphasis is on the use of the duty-paid input in the manufacture of final product. The words used and consumed are not identical and synonymous. They have not been defined in the Rules and in the Central Excises and Salt Act, 1944. The verb use as per chambers English Dictionary means: "to put to some purpose; to avail oneself of; to resort to; to make use of; to take or consume. . . ". The verb consume in the same dictionary means: "to destroy by wa