Input duty credit under exemption must correlate with duty-paid clearances; credit for Rule 56B removals cannot be diverted.

Credit under Notification No. 201/79 could be used only to the extent it was relatable to finished goods cleared on payment of duty, because the procedure for taking and utilising credit could not expand the substantive exemption. The term "equivalent" required a real correlation between input duty and output duty, though not exact lot-to-lot identification. Credit attributable to inputs used in goods removed without payment of duty under Rule 56B could not be diverted to duty-paid clearances from the factory. The claim for full utilisation of input credit irrespective of such correlation was rejected.

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Issues: Whether, under Notification No. 201/79, the credit of duty paid on barley malt inputs could be utilised in full against duty on finished Horlicks cleared from the factory on payment of duty, without correlation to the quantity of input used in those duty-paid clearances.

Analysis: The notification exempted excisable goods from duty to the extent equivalent to the duty already paid on the inputs. The accompanying procedure permitted taking credit and using it for payment of duty on the said goods, but that procedure could not enlarge the substantive exemption. The expression "equivalent" required some correlation between the input and the output, though not an exact lot-to-lot identification. Credit attributable to inputs used in goods removed without payment of duty under Rule 56B could not be diverted to duty-paid clearances from the factory. Prior decisions on substantial compliance, the nature of raw materials, and absence of strict co-relation did not support the claim for full utilisation of credit irrespective of the duty-paid clearances.

Conclusion: The credit of duty on inputs could be utilised only to the extent relatable to the finished goods cleared on payment of duty from the factory, and not in respect of inputs used in goods removed without payment of duty under Rule 56B.

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