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Issues: (i) Whether reversal of credit in respect of inputs used in the manufacture of exempted goods was sufficient to deny the Revenue's demand under the exemption notification; (ii) Whether the demand relating to the alleged shortage of inputs could survive when part of the goods was shown as work in progress and part as manufacture waste reflected in the statutory records.
Issue (i): Whether reversal of credit in respect of inputs used in the manufacture of exempted goods was sufficient to deny the Revenue's demand under the exemption notification.
Analysis: The exemption for plastic storage tanks up to 300 litres was available subject to non-availment of credit on inputs. The respondents had reversed the credit attributable to the inputs used for the exempted goods. The Revenue's objection was confined to the adequacy of reversal, not to any failure to reverse credit altogether. In view of the governing Supreme Court principle accepted in the case relied upon, reversal of credit for the exempted clearances satisfied the condition of exemption.
Conclusion: The issue was decided in favour of the assessee, and the demand based on non-reversal of credit was not sustainable.
Issue (ii): Whether the demand relating to the alleged shortage of inputs could survive when part of the goods was shown as work in progress and part as manufacture waste reflected in the statutory records.
Analysis: The respondents produced evidence that a portion of the inputs remained contained in work in progress on the date of verification and that another portion had become waste during manufacture, with such waste duly recorded in the statutory records. The factory was operating on the day of inspection, and the Revenue did not dispute these factual aspects. On that basis, the apparent shortage was explained and no separate dutiable removal of inputs was established.
Conclusion: The issue was decided in favour of the assessee, and the remaining demand was not justified.
Final Conclusion: The appeal failed in entirety and the impugned order dropping the demand was sustained.
Ratio Decidendi: Where credit attributable to inputs used in exempted goods is reversed, and the alleged shortage of inputs is explained by work in progress and manufacture waste supported by records, a duty demand cannot be sustained.
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