Rule 57Q credit depends on functional nexus with manufacture; post-manufacture cutting and unnotified intermediates do not qualify.

Credit under Rule 57Q required a direct functional nexus with manufacture. Cutters used only to cut finished, marketable leather cloth after manufacture were outside the manufacturing process, so credit on them was not admissible. Humidifier and digital counter used in relation to cotton fabric also failed, because cotton fabric was not a notified intermediate product at the relevant time. By contrast, goods used in processes leading to manufacture, or for trimming, uniformity and quality inspection with the manufacturing flow, were treated as eligible, so credit on those items was admissible.

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Issues: (i) whether duty-paid cutters, humidifier and digital counter were eligible for credit under Rule 57Q; (ii) whether the remaining goods used in or in relation to the manufacture of leather cloth were eligible for credit.

Issue (i): whether duty-paid cutters, humidifier and digital counter were eligible for credit under Rule 57Q.

Analysis: The cutters were used only to cut the already finished and marketable leather cloth to specified lengths after manufacture was complete, and such post-manufacture cutting did not amount to manufacture. The humidifier and digital counter were used in relation to cotton fabric, but cotton fabric was not a notified intermediate product under Rule 57Q at the relevant time.

Conclusion: Credit on these items was not admissible and this issue was decided against the assessee.

Issue (ii): whether the remaining goods used in or in relation to the manufacture of leather cloth were eligible for credit.

Analysis: The remaining goods were used in processes leading to manufacture or for trimming, uniformity, and quality inspection after emergence of the rolls. On that footing, and applying the settled principle that goods used in or in relation to manufacture qualify where they have a functional nexus with the manufacturing process, they fell within the credit scheme.

Conclusion: Credit on the remaining goods was admissible and this issue was decided in favour of the assessee.

Final Conclusion: The credit claim was allowed only to the extent of the remaining goods, while credit on the cutters, humidifier, and digital counter was rejected.

Ratio Decidendi: For credit under Rule 57Q, the goods must have a direct functional nexus with manufacture or the manufacturing process; items used only after the product is complete and marketable, or for an unnotified intermediate product, do not qualify.

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