Common input credit on molasses allowed where exempted rectified spirit compliance satisfied credit restriction.

Molasses used in the manufacture of rectified spirit, which was then used to produce denatured spirit, was treated as a common input for credit purposes. The Tribunal applied Rule 57AD and held that the credit restriction for inputs used in exempted goods was satisfied where the assessee had already paid 8% of the value of the exempted rectified spirit. It accepted that entitlement to credit depended on the actual use of the input in the manufacturing chain and the compliance already made. Credit on molasses was therefore admissible.

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Issues: Whether molasses used in the manufacture of rectified spirit and denatured spirit constituted a common input so as to permit availment of credit, and whether payment of 8% of the value of the exempted rectified spirit satisfied the applicable credit restriction.

Analysis: The Tribunal found that molasses was used in the manufacture of rectified spirit, from which denatured spirit was subsequently produced, and that the assessee had paid 8% of the value of the exempted rectified spirit. It held that the applicable restriction on credit for inputs used in exempted goods was governed by Rule 57AD and that the factual compliance brought the case within the exception recognised under sub-rule (2). The Tribunal also accepted the view that the credit question had to be decided on the basis of the actual use of the input in the manufacturing chain and the compliance already made by the assessee.

Conclusion: Credit on molasses was admissible, and the Revenue's challenge failed while the assessee's challenge to denial of credit succeeded.

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