Common input credit reversal applies to exempt final products even when they emerge as by-products or subsidiary products.

Rule 57CC and the corresponding Cenvat credit provision apply where common inputs are used, directly or indirectly, in the manufacture of both dutiable and exempt excisable final products. The analysis treats exempt products consciously and regularly manufactured for sale as final products, even if they emerge as by-products or subsidiary products, so long as the input is used in relation to their manufacture. Rule 57D was confined to waste, refuse, scrap, or non-excisable by-products and was not extended to exempt excisable goods. On that construction, the 8% amount was stated to remain payable on exempt final products arising in the course of manufacture.

---

---

Issues: Whether the requirement to pay 8% under Rule 57CC of the Central Excise Rules, 1944, and the corresponding Rule 6 of the Cenvat Credit Rules, 2002, applies where exempt goods emerge as by-products or subsidiary products, and whether HCL used in the process could be treated as used in relation to the manufacture of the exempt products.

Analysis: The rule was construed on its plain language as applying where common inputs are used, directly or indirectly, in the manufacture of both dutiable and exempt final products. The emergence of mother liquor in the course of manufacture did not prevent HCL from being treated as an input used in relation to the exempt products, because the exempt Phosphoryl A and B were found to be consciously and regularly manufactured and sold final products. Rule 57D was held to protect only waste, refuse, scrap, or by-products not excisable at all, and not exempt excisable products. The contrary line of authorities treating exempt by-products as outside Rule 57CC was not accepted.

Conclusion: The 8% amount under Rule 57CC was held payable on exempt final products even if they arise as by-products or subsidiary products, and the reference was answered in favour of the Revenue.

Ratio Decidendi: Where common inputs are used in or in relation to the manufacture of both dutiable and exempt excisable final products, Rule 57CC applies irrespective of whether the exempt product is intended manufacture or an exempt by-product.

---