Input tax credit on mixed-use capital goods must be apportioned under the prescribed formula, not claimed in full.

Input tax credit on capital goods used for both taxable manufacturing and non-taxable job work had to be restricted by proportionate apportionment under the Act and Rules. Where capital goods were employed for mixed purposes, the statutory scheme required the non-deductible element to be computed under the prescribed formula, and full credit was not available merely because the goods were acquired for business use. The text states that Rule 133(c) expressly directed application of the Rule 131 formula in such cases, confirming that mixed use triggered a partial reversal of credit.

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Issues: Whether input tax credit on capital goods used partly for taxable manufacturing activity and partly for job work or other non-taxable transactions had to be proportionately restricted under the apportionment formula in the rules.

Analysis: The dispute turned on the interaction between the provision governing input tax credit on capital goods and the provision dealing with partial rebate where goods are used for mixed purposes. On the facts, the assessee used the capital goods not only for manufacturing taxable goods but also for job work and other non-taxable transactions. The statutory scheme of the Act and the Rules required apportionment where capital goods were employed for both taxable and non-taxable purposes. Rule 133(c) specifically directed that the non-deductible element be computed by applying the formula in Rule 131 when capital goods were so used. The contention that full credit was available merely because capital goods were purchased for business use was rejected in view of the express statutory restriction on mixed use.

Conclusion: The restriction of input tax credit by proportionate apportionment was in law and the issue was decided against the assessee and in favour of the Revenue.

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