Proforma credit under Rule 56-A(2) cannot be denied where manufacturing refuse is not the finished exempt or nil-rated product.

Proforma credit under Rule 56-A(2) could not be denied merely because aluminium ingots yielded dross and skimmings during manufacture of aluminium sheets. The proviso withdrew credit only where the material was used to manufacture finished excisable goods that were exempt from duty or chargeable to nil duty, and dross and skimmings were only manufacturing refuse or scum, not the intended finished product. As the ingots were not used to manufacture exempt or nil-rated goods, the proviso did not apply and the manufacturer was entitled to the credit claimed; the notice and order were unsustainable.

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Issues: Whether the proviso to Rule 56-A(2) of the Central Excise Rules, 1944 disentitled the manufacturer from availing proforma credit on aluminium ingots to the extent they were converted into dross and skimmings during manufacture of aluminium sheets.

Analysis: Rule 56-A(2) permits credit of duty already paid on materials received for the manufacture of specified excisable goods, but the proviso withdraws such credit only where the material is used in the manufacture of finished excisable goods that are exempt from duty or chargeable to nil duty. Dross and skimmings arising in the course of producing aluminium sheets were found to be merely refuse or scum from the manufacturing process and not goods brought into existence as the intended finished product. They were not the finished excisable goods manufactured from the ingots, nor could the ingots be said to have been used for manufacturing dross and skimmings. They also were not shown to be exempt finished goods or nil-rated goods. The department's attempt to treat the entire quantity of dross and skimmings as the basis for denying credit was inconsistent with its own admission that such dross and skimmings contained only a small percentage of aluminium.

Conclusion: The proviso to Rule 56-A(2) did not apply, and the manufacturer was entitled to the credit claimed; the impugned notice and order were unsustainable.

Ratio Decidendi: Proforma credit under Rule 56-A(2) cannot be denied by invoking the proviso unless the material is used in the manufacture of finished excisable goods that are exempt or nil-rated; manufacturing refuse or scum not constituting the finished product does not attract the proviso.

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