Capital goods credit allowed for mixed use in exempt and dutiable production under Rule 57R(1)

Credit on capital goods was admissible where the machines were used for both nil-duty goods and dutiable goods. Rule 57R(1) barred credit only when capital goods were used exclusively for manufacture of exempt or nil-rate products, and mixed use did not satisfy that condition. The later insertion of the word "exclusively" confirmed that the restriction was confined to exclusive use for exempt production. The credit denial under Rule 57R(1) therefore did not apply.

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Issues: Whether credit on capital goods was deniable under Rule 57R(1) of the Central Excise Rules, 1944 when the same machines were used for manufacture of both exempt goods and dutiable goods.

Analysis: The capital goods were used not only for manufacture of labels and badges chargeable to nil duty, but also for production of laces cleared on payment of duty. The condition in Rule 57R(1) denying credit applies only where capital goods are used exclusively for manufacture of goods exempt from duty or chargeable to nil rate of duty. The later amendment inserting the word "exclusively" confirmed that mixed use for dutiable and exempt goods does not attract the bar.

Conclusion: The restriction under Rule 57R(1) did not apply, and credit on the capital goods was admissible to the assessee.

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