Input duty set-off under exemption notification allowed on overall clearances without batchwise one-to-one correlation

An exemption notification that grants set-off of duty paid on inputs against duty on specified final products does not require batchwise one-to-one correlation unless the notification expressly so provides. Where the scheme operates by allowing the duty on inputs to be adjusted against duty on the final product, the absence of a separate credit-taking mechanism does not change the substance of the exemption or justify a strict lot-by-lot linkage. The Tribunal's earlier view was upheld, and the exemption could be availed on overall clearances without insisting on input-output correlation for each batch.

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Issues: Whether Notification No. 225/86-C.E. permitted the exemption benefit to be taken on overall clearances of final products without insisting on batchwise one-to-one correlation between the duty paid on inputs and the duty payable on the corresponding final products, and whether the earlier Tribunal decision holding so required reconsideration.

Analysis: The notification grants exemption to specified final products to the extent of the duty already paid on the inputs used in or in relation to their manufacture. It does not prescribe any express or implied condition that the exemption relatable to a particular lot of inputs must be exhausted only against the final products manufactured from that very lot. Unlike notifications which merely reduce the duty rate to a fixed percentage, this notification works by setting off the duty paid on inputs against duty on final products. The absence of a built-in credit-taking procedure does not alter the substance of the exemption or require strict batchwise correlation. The reasoning applied in earlier decisions on similar exemption or credit schemes supports the view that where the final products remain dutiable, strict one-to-one correlation is not necessary.

Conclusion: The earlier Tribunal decision was correct. The question referred was answered by holding that the decision did not require reconsideration and that the exemption under Notification No. 225/86-C.E. could be availed without insisting on one-to-one correlation.

Final Conclusion: The reference was answered in favour of the assessee by upholding the validity of the earlier view on the scope of the exemption notification.

Ratio Decidendi: Where an exemption notification grants set-off of duty paid on inputs against duty on specified final products without prescribing a correlation mechanism, the benefit may be allowed on overall clearances without batchwise one-to-one linkage between inputs and outputs.

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