Capital goods credit allowed where purge gas recovery plant had mixed use and was not exclusively tied to exempt manufacture.

Credit on capital goods is barred under Rule 57R(1) only where they are used exclusively in the manufacture of exempt or nil-rated final products. The purge gas recovery plant was treated as an add-on to the ammonia plant and was used to recover purge and flash gases for multiple purposes, including fuel, cooling and sale. Because its use in fertilizer manufacture was only incidental and not exclusive, the credit restriction did not apply and the assessee was entitled to the benefit.

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Issues: Whether credit on the Purge Gas Recovery Plant was inadmissible on the ground that the plant was used exclusively in the manufacture of exempt final products.

Analysis: Rule 57R(1) bars credit on capital goods used exclusively in the manufacture of final products that are exempt from duty or chargeable to nil rate of duty. The plant in question was found to be an add-on to the ammonia plant, used for recovery of purge and flash gases, and not confined exclusively to the manufacture of fertilizers. The recovered gases had multiple uses, including fuel, cooling, and sale, so the plant's use in fertilizer manufacture was only incidental and not exclusive.

Conclusion: Credit was not barred under Rule 57R(1), and the assessee was entitled to succeed on this issue.

Final Conclusion: The appeal failed because the plant was not shown to be used exclusively for exempt fertilizer manufacture, and the order allowing credit was sustained.

Ratio Decidendi: Credit on capital goods is unavailable only when their use is exclusively in the manufacture of exempt final products; incidental or mixed use does not attract the bar.

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