Purposive construction of input credit notification extends relief to intermediate products and sister-factory manufacture, subject to verification.

Notification No. 201/79 was construed purposively to grant relief where duty-paid raw materials were consumed in manufacture, and the benefit was not confined to direct use in the final product within the same factory. It extended to cases where an intermediate product made from such inputs was transferred to a sister factory for further manufacture, provided the duty-paid raw material was fully consumed in the resultant dutiable product. Credit, however, was subject to departmental verification of the duty-paid character of the inputs and the quantity actually consumed before relief could be granted.

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Issues: (i) Whether the assessee was entitled to the benefit of Notification No. 201/79 dated 4-6-1979 where duty-paid raw materials were used in the manufacture of an intermediate product, and the intermediate product was transferred to a sister factory for manufacture of the final dutiable product; (ii) whether the claim for credit was to be granted only after verification of the duty-paid character of the inputs and the quantity consumed in the finished products.

Issue (i): Whether the assessee was entitled to the benefit of Notification No. 201/79 dated 4-6-1979 where duty-paid raw materials were used in the manufacture of an intermediate product, and the intermediate product was transferred to a sister factory for manufacture of the final dutiable product.

Analysis: The notification was construed in the light of its object and purpose, namely to grant relief where duty-paid raw materials falling under Item 68 of the Central Excise Tariff were consumed in manufacture. The benefit was held not to be confined to cases where the raw material was directly used in the final product in the same factory. It extended to cases where the same manufacturer used the intermediate product in the further manufacture of dutiable goods, including in a sister factory, so long as it could be established that the duty-paid raw material was fully consumed in the resultant final product.

Conclusion: The assessee was entitled to the benefit of Notification No. 201/79 dated 4-6-1979.

Issue (ii): Whether the claim for credit was to be granted only after verification of the duty-paid character of the inputs and the quantity consumed in the finished products.

Analysis: The entitlement to credit was made subject to departmental satisfaction regarding the duty-paid nature of the raw materials and the quantum actually used in the finished dutiable products. On that basis, the matter was sent back for necessary verification before granting the relief.

Conclusion: The credit claim was to be allowed only after verification by the department.

Final Conclusion: The assessee succeeded on the substantive eligibility for the exemption benefit, but the grant of relief was to follow fresh verification by the department, and the matter was sent back for that purpose.

Ratio Decidendi: An exemption or credit notification intended to relieve duty on consumed inputs must be construed purposively, and its benefit is not denied merely because the input is used in an intermediate exempt product or in a sister factory, provided the same manufacturer establishes full consumption of duty-paid raw material in the final dutiable product.

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