Inputs for excise set-off need not enter the final product bodily if they are consumed in manufacturing and improve product quality.

For excise set-off under the relevant exemption notification, a material need not become part of paper bodily; it qualifies if it is consumed and utilised in the manufacturing process and directly contributes to the production or quality of paper and paperboard. On that basis, lime, salt cake and sulphamic acid were treated as inputs because they were used in intermediate manufacturing stages and affected fibre or paper quality. Alum used in treating process water was also treated as an input where that water was used in paper manufacture. Alum used only in the clarifloculator for effluent treatment before discharge did not qualify, because it was not part of the manufacturing process.

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Issues: Whether chemicals and other substances such as lime, salt cake, sulphamic acid and alum are "inputs" or raw materials used in the manufacture of paper and paperboard so as to qualify for the set-off benefit under the relevant exemption notification, and whether alum used in treating effluent water is also entitled to the concession.

Analysis: The relevant notifications granted set-off for inputs used and consumed in the manufacture of paper and paperboard. The decisive test was not whether the material entered bodily into the finished paper, but whether it was consumed and utilised in the manufacturing process and contributed directly to the emergence or quality of the final product. On that basis, lime, salt cake and sulphamic acid were held to be inputs because they were used in intermediate processes that led to paper production and improved the fibre and paper qualities. Alum used for treating process water was also treated as an input where that water was used in paper manufacture. However, alum used in the clarifloculator for neutralising and treating effluent water before discharge was not regarded as part of the manufacturing process, since such water did not go into paper production.

Conclusion: The benefit of the notification was allowed for the substances used and consumed in paper manufacture, but not for alum used in effluent treatment.

Final Conclusion: The entitlement to set-off depends on whether the material is consumed in the manufacturing process and directly contributes to production or quality of the final product; materials used only for effluent treatment do not qualify.

Ratio Decidendi: For excise exemption or set-off purposes, an input or raw material need not form part of the finished product bodily, but it must be consumed in the manufacturing process and directly contribute to the manufacture or quality of the product.

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