Duty set-off remains available for export-linked manufacture; reconciled input quantities defeated the alleged shortage objection.

Duty set-off under Notification No. 225/86-C.E. was held admissible for MEG used to manufacture PSF cleared without duty under Rule 191BB for export-linked production, because such clearance was not treated as clearance of exempted goods and was to be read on the same footing as export clearances under bond. The separate objection based on alleged short receipt of MEG also failed, as the quantities across the bills of entry were reconciled and no net shortage remained. On that basis, the disallowance of set-off was not sustained and the Revenue's claim was rejected.

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Issues: (i) Whether the set-off of duty paid on MEG used in the manufacture of PSF cleared without payment of duty under Rule 191BB for use in the manufacture of finished goods for export was admissible under Notification No. 225/86-C.E.; (ii) Whether the disallowance of set-off on the ground of alleged short receipt of MEG was sustainable.

Issue (i): Whether the set-off of duty paid on MEG used in the manufacture of PSF cleared without payment of duty under Rule 191BB for use in the manufacture of finished goods for export was admissible under Notification No. 225/86-C.E.

Analysis: Notification No. 225/86-C.E. granted duty concession corresponding to duty paid on the specified input used in the manufacture of the finished product. The clearance of PSF without payment of duty under Rule 191BB for use in the manufacture of export goods was not treated as clearance of exempted goods. The same treatment had already been accepted for export clearances under bond, and the notification was to be applied on the same principle. The reasoning adopted for the Modvat scheme also supported availability of the benefit where the final product was cleared without payment of duty for export-linked manufacture.

Conclusion: The set-off was admissible and the Revenue's objection was rejected.

Issue (ii): Whether the disallowance of set-off on the ground of alleged short receipt of MEG was sustainable.

Analysis: The alleged shortage was examined against the total quantity covered by all the bills of entry. The excess receipt shown under some bills of entry had to be adjusted against the alleged shortage under others, and on such reconciliation no short receipt survived. The Revenue did not demonstrate any error in that finding.

Conclusion: The finding of no short receipt was upheld.

Final Conclusion: The impugned order disallowing the Revenue's claim was affirmed in full, and the appeal was rejected.

Ratio Decidendi: Goods cleared without payment of duty under a bond for export-linked manufacture are not to be treated as exempted goods for denying input-linked duty set-off under the relevant exemption notification, and a shortage allegation must fail where reconciliation of the entire consignment shows no net short receipt.

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