Common input credit survives when waste arises in manufacture; disputed ghee demand and penalty were not sustainable.

Rule 57D protected common input credit where husk emerged as waste in manufacture and was cleared as cattle feed, so credit could not be denied merely because a waste product arose. The demand linked to ghee was not sustainable to the extent challenged, as the relevant amount had already been reversed and the quantification issue had not been properly communicated to the noticee. Credit on Malted Barley was also upheld because it was used as an input in manufacture and no basis was shown for reversing it. The demand and penalty were therefore not sustainable to the extent disputed.

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Issues: Whether credit and demand under Rule 57CC could be sustained in respect of ghee and husk cleared from the manufacturing process, and whether the penalty and related demand were justified.

Analysis: The Tribunal noted that husk emerged as a waste product and was cleared as cattle feed. In such a situation, Rule 57D protected the credit taken on common inputs, because credit cannot be denied merely because waste arises in the course of manufacture. The Tribunal also found no infirmity in the Commissioner's treatment of the demand relating to ghee and observed that the amount for the relevant period had already been reversed, while the quantification issue was not properly communicated to the noticee. The Revenue's objection regarding Malted Barley was not accepted, as Malted Barley was one of the inputs used in manufacture and no basis was shown for reversing credit on that ground.

Conclusion: The demand and penalty were not sustainable to the extent challenged, and the assessee's position was accepted.

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