Common input credit cannot be denied by isolating one month of exempted production when dutiable goods are also manufactured.

Where common inputs are used in the manufacture of both dutiable and exempted final products, credit eligibility cannot be denied by isolating a single month in which only exempted goods were produced. The text states that the liability must be assessed on the overall manufacturing pattern and the statutory scheme, not on a fragmented day-to-day or month-by-month basis. On that approach, the fact that exempted goods alone were manufactured during the relevant month did not justify reversal of the entire credit, and payment of 8% of the value of the exempted goods was treated as sufficient.

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Issues: Whether, where the assessee manufactured both dutiable and exempted final products and used common inputs, the entire credit could be reversed merely because during one month only exempted goods were manufactured, or whether payment of 8% of the value of the exempted goods was sufficient.

Analysis: The input was common to both dutiable and exempted products, and the assessee had a running credit mechanism for such inputs. The liability could not be compartmentalised on a day-to-day or isolated monthly basis so as to treat one period in separation from the overall manufacturing pattern. The fact that in the relevant month only exempted goods were manufactured did not justify denial of credit when, over the relevant period, the assessee also manufactured dutiable goods. The decision followed the view that credit cannot be disallowed on such a fragmented assessment of production periods.

Conclusion: The assessee was not required to reverse the entire credit merely because only exempted goods were manufactured during the month in question, and the appeal was allowed.

Ratio Decidendi: Credit eligibility for common inputs is not to be denied by isolating a short period of manufacture where, in the relevant business cycle, both dutiable and exempted goods are produced; the liability must be determined on the overall statutory scheme and not on a fragmented temporal basis.

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