Rule 57CC inapplicable where exempt goods arise from a by-product stream and inputs are used only for the main dutiable product.

Rule 57CC did not apply where modvatable inputs were used only in the manufacture of gelatin, and Calphor emerged later from the mother liquor/by-product stream. Credit on inputs could not be denied because Rule 57D protected inputs contained in waste, refuse, or by-products arising during manufacture of the final product. As the inputs were not used in relation to both dutiable and exempted final products, no reversal or payment at 8% of the price of Calphor was required, and the input credit remained available.

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Issues: Whether Rule 57CC of the Central Excise Rules, 1944 required reversal/payment at 8% of the price of Calphor, and whether credit on inputs used in manufacturing gelatin could be denied on the ground that Calphor emerged as a by-product or exempted product.

Analysis: The manufacture showed that the inputs were used in relation to gelatin, while mother liquor emerged as a by-product in the course of that manufacture and was later treated with lime to obtain Calphor. Rule 57D protected credit where part of the inputs was contained in waste, refuse, or by-product arising during manufacture of the final product. Rule 57CC applied only where inputs were used in or in relation to the manufacture of both dutiable and exempted final products. On the facts, the inputs were not used simultaneously in the manufacture of gelatin and Calphor, and the emergence of Calphor from the by-product stream did not attract Rule 57CC.

Conclusion: Rule 57CC was inapplicable, and the appellants were not liable to pay 8% of the price of Calphor; the input credit could not be denied.

Ratio Decidendi: Where exempted goods arise from a by-product stream and the modvatable inputs are used only in the manufacture of the main dutiable product, Rule 57CC does not apply and credit cannot be denied under Rule 57D.

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