Proforma credit under exemption notification denied where final products were cleared at nil duty and no output duty existed for adjustment.

Proforma credit under Notification No. 95/83 was unavailable where the specified inputs were used to manufacture final products cleared at nil rate of duty, because the scheme contemplated adjustment of input duty against duty payable on the finished goods. As no output duty was payable, the credit mechanism could not operate, and the absence of an earlier omitted proviso did not change that construction. The respondent was therefore not entitled to retain the input duty credit or claim refund for the period in question. On maintainability, the objection under Section 35L(b) was not finally decided, but the matter was entertained under Article 136 in the interests of justice.

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Issues: (i) Whether proforma credit under Notification No. 95/83 was available when the inputs were used only in the manufacture of final products cleared at nil rate of duty. (ii) Whether the appeal could be maintained under Section 35L(b) of the Central Excises and Salt Act, 1944, and, in the alternative, under Article 136 of the Constitution of India.

Issue (i): Whether proforma credit under Notification No. 95/83 was available when the inputs were used only in the manufacture of final products cleared at nil rate of duty.

Analysis: The notification granted exemption to final products to the extent of duty already paid on specified inputs and expressly required the inputs to be used in the manufacture of the corresponding final products. The scheme operated by adjusting input duty against duty otherwise payable on the finished goods. That mechanism presupposed that duty was payable on the final products. Where the finished products were cleared at nil rate of duty, no adjustment of input duty against output duty was possible, and the credit could not be retained merely because the inputs were used in the manufacture of the specified goods. The absence of the omitted proviso from the earlier notification did not alter this construction.

Conclusion: The respondent was not entitled to the input duty credit or refund for the period when the final products were cleared without duty. The issue is decided against the assessee and in favour of Revenue.

Issue (ii): Whether the appeal could be maintained under Section 35L(b) of the Central Excises and Salt Act, 1944, and, in the alternative, under Article 136 of the Constitution of India.

Analysis: The objection under Section 35L(b) was noted, but the Court found it unnecessary to pronounce finally on that objection. To end the long-standing dispute, the Court allowed the request to treat the matter as one under Article 136 as well, holding that the belated request could be entertained in the interests of justice. This enabled the appeal to be heard on merits.

Conclusion: The alternative prayer under Article 136 was accepted, and the matter was entertained on merits.

Final Conclusion: The exemption notification could not be invoked to claim proforma credit where the final products were wholly duty-free during the relevant period, and the impugned appellate order was unsustainable.

Ratio Decidendi: An exemption scheme allowing credit of duty on inputs against duty on final products cannot be applied where no duty is payable on the final products, because the credit is intrinsically linked to adjustment against output duty.

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