Reversal of input credit defeated duty demand on exempt rectified spirit clearances; Rule 57CC was not decisive.

Where proportionate input credit attributable to molasses used in manufacturing exempt rectified spirit had already been reversed, an 8% duty demand on the value of nil-rated clearances was not sustainable. The analysis treated the prior reversal of credit as the ative factual basis, and therefore the demand could not be justified merely by reliance on Rule 57CC. The controversy turned on whether the exempt clearances still attracted a separate duty liability despite reversal of the corresponding credit; on these facts, they did not.

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Issues: Whether the demand of duty at 8% on the value of rectified spirit cleared at nil rate of duty was sustainable when the assessee had reversed the credit attributable to inputs used in the manufacture of the exempted product.

Analysis: The assessee had already reversed the proportionate credit taken on molasses used as input for manufacture of rectified spirit. On that factual basis, the demand of duty at 8% on the exempt clearances was not warranted. The reliance placed on Rule 57CC was not accepted as determinative of the controversy in view of the reversal of credit on the inputs used for the exempted goods.

Conclusion: The demand was held unsustainable and the assessee succeeded on the issue.

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