Duty credit on raw material used for mandatory quality testing forms part of manufacture and remains admissible.

Raw material consumed for statutory quality testing before the remaining material entered production was treated as part of the manufacturing process, because the testing was necessary to satisfy legal requirements for the finished medicines and formed an integral step in manufacture. On that basis, duty credit on the tested quantity was held admissible, and the denial of credit by the lower authorities was unsustainable.

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Issues: Whether a small portion of raw material used for quality testing required under another statute forms part of the manufacturing process so as to make the duty credit on such raw material admissible.

Analysis: The raw material consumed for testing was used only for quality control before the balance material was taken up for manufacture of medicines. Such testing was necessary to satisfy the legal requirement applicable to the finished product and was an integral step in the overall process of manufacture. On that basis, the reasoning treated the tested material as part of the manufacturing activity rather than as material used outside production.

Conclusion: Credit of duty paid on the raw material used for quality testing was admissible, and the denial of credit by the lower authorities was unsustainable.

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