Set-off notification benefit survives scheme transition absent one-to-one input correlation; parallel proforma credit cannot defeat credit entitlement.

A duty exemption or set-off notification was interpreted as granting relief for duty already paid on specified inputs used in manufacture, without requiring one-to-one correlation between particular inputs and final products. Duty paid on inputs received before the change-over date remained available for set-off against duty on final products cleared later. The existence of a parallel proforma credit scheme did not defeat that entitlement where both schemes operated concurrently and the assessee was permitted to opt for proforma credit. On that basis, the credit claim was upheld and the demand under Section 11A was held unsustainable.

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Issues: Whether the assessee was entitled to transfer unutilised duty credit from the set-off register to the proforma credit register and utilise it for payment of duty on the final product, and whether the demand raised under Section 11A was sustainable.

Analysis: The notification governing the set-off scheme was an exemption notification granting relief to the final product to the extent of duty already paid on specified inputs used in its manufacture. The governing interpretation accepted that the notification did not require one-to-one correlation between a particular lot of input and a particular lot of final product. On that basis, duty paid on inputs received before the change-over date would remain available for set-off against duty on the final product cleared thereafter. The existence of a parallel proforma credit scheme did not justify denying the assessee the benefit that would otherwise have accrued under the set-off notification, particularly where both schemes operated simultaneously and the assessee had been permitted to opt for proforma credit thereafter.

Conclusion: The assessee was entitled to the credit and the demand was not sustainable; the disallowance and recovery were set aside.

Ratio Decidendi: A duty exemption or set-off notification that grants relief for duty paid on specified inputs used in manufacture does not, in the absence of express words, require one-to-one correlation between the inputs and the final products, and the benefit cannot be denied merely because credit was transferred between parallel permissible credit schemes.

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