Rule 57C credit reversal must include processing loss in common inputs used for exempted goods before Rule 57CC

For the period before 1-9-1996, Rule 57C required reversal of credit on the full quantity of common inputs used in exempted goods, and that computation included processing loss. The disputed issue was whether processing loss should be excluded from the inputs relatable to exempted production. The text states that the entire quantity consumed in manufacturing exempted goods had to be taken into account, so the credit reversal was to be computed on that basis. The contrary view of the lower appellate authority was therefore set aside for the relevant period.

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Issues: Whether, for the period prior to 1-9-1996, the entire quantity of inputs used in the manufacture of exempted goods, including processing loss, had to be taken into account while reversing credit under Rule 57C of the Central Excise Rules.

Analysis: The respondents had used common inputs for dutiable and exempted goods and had reversed credit in respect of inputs used for exempted goods. The dispute was confined to whether the quantity attributable to processing loss formed part of the inputs relatable to exempted production. The period involved was prior to the introduction of Rule 57CC, and at that time Rule 57C governed denial of credit on inputs used in exempted goods. The entire quantity of inputs consumed in such manufacture, including processing loss, was required to be considered for determining the credit to be reversed.

Conclusion: The demand was sustainable to the extent of including processing loss in the computation for reversal of credit, and the contrary finding of the lower appellate authority was set aside for the relevant period.

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