Input duty credit scheme permits full utilisation without strict input-output correlation under the excise notification.

Notification No. 201/79-C.E. created a credit-based set-off scheme under which duty already paid on inputs could be taken on receipt and used against duty on manufactured goods. The Appendix's procedural clauses, including utilisation and transfer of unutilised credit, showed that exact one-to-one correlation between particular inputs and particular clearances was not required. The Supreme Court construed the scheme and its object as avoiding cascading duty burden, and held that the manufacturer could utilise the entire input credit without proving strict input-output matching; the Revenue's proportional credit approach was rejected.

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Issues: Whether, under Notification No. 201/79-C.E. dated 4-6-1979, the manufacturer was entitled to take credit of the entire duty paid on inputs received in one factory against duty payable on finished goods cleared from that factory, without establishing a strict correlation between the inputs used and the goods cleared.

Analysis: The notification, read with its Appendix, permitted credit of duty already paid on inputs to be taken on receipt of the inputs after declaration and to be utilised towards payment of duty on the manufactured goods. The procedural clauses in the Appendix, including the provisions dealing with utilisation of credit and transfer of unutilised credit, showed that the scheme did not require exact one-to-one correlation between particular inputs and particular clearances. The changed language in Rule 56A of the Central Excise Rules, 1944 and the stated object of the notification supported a credit-based procedure intended to avoid the cascading burden of duty, rather than a rigid set-off confined only to goods cleared from the same batch of inputs.

Conclusion: The assessee was entitled to take credit of the entire duty paid on the inputs against the duty payable on the finished goods cleared from its factory; the Revenue's contention of proportionate credit only was rejected.

Final Conclusion: The notification was construed to allow full input-credit utilisation without requiring strict input-output correlation, thereby granting the assessee relief from the disallowance made by the Revenue.

Ratio Decidendi: Where an exemption notification and its procedural appendix create a credit-based set-off scheme, the credit of duty paid on inputs may be utilised against duty on manufactured goods without proof of exact correlation between the particular inputs and the particular clearances, if the text and object of the scheme so indicate.

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