Duty credit under Central Excise Rules accepted where imported input was fully utilised in manufacture without diversion or strict one-to-one correlation.

Rule 56A(3)(vi) of the Central Excise Rules was construed as allowing duty credit where imported material or component parts were used in manufacturing finished excisable goods, without requiring a one-to-one correlation between the imported input and the final product. On the facts, the imported Rock Phosphate was fully accounted for and wholly utilised in the manufacture of fertilisers, with no diversion or misdirection. The court therefore rejected the correlation requirement and held that the petitioners had complied with the rule, rendering the demand unsustainable and the writ petition successful.

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Issues: Whether, under Rule 56A(3)(vi) of the Central Excise Rules, the manufacturer was required to correlate the imported Rock Phosphate with the ultimate finished product, and whether complete utilisation of the imported material without diversion satisfied the rule.

Analysis: The rule permitted credit in respect of material or component parts to be utilised towards payment of duty on finished excisable goods manufactured from such materials. On the facts, the imported Rock Phosphate was fully accounted for and ultimately wholly utilised in the manufacture of fertilisers. The provision did not impose an additional obligation to establish one-to-one correlation between the imported input and the final product, so long as there was no misdirection or diversion of the imported goods.

Conclusion: The requirement of correlation was rejected, and the petitioners were held to have complied with the rule. The demand was unsustainable and the writ petition succeeded.

Ratio Decidendi: Where a duty credit scheme requires utilisation of imported input in manufacture, full utilisation without diversion satisfies the rule unless the provision expressly requires direct correlation between the imported quantity and the finished product.

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