Input credit remains available despite a non-excisable intermediate product when the scheme prevents cascading duty.

Input credit under Rule 57D(2) could not be denied merely because a non-excisable intermediate product emerged during manufacture of dutiable final products. The scheme was construed to prevent cascading duty and to preserve credit where intermediate goods are exempt or liable to nil duty, and the absence of an express prohibition against non-excisable intermediates required a construction that advanced that object. On that basis, the assessee remained entitled to credit of duty paid on the input.

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Issues: Whether credit of duty paid on an input used in the manufacture of specified final products can be denied merely because an intermediate product emerging in the course of manufacture is non-excisable and not leviable to Central Excise duty.

Analysis: The credit scheme under Rule 57D(2) is intended to prevent denial or variation of input credit on the ground that intermediate products arise during manufacture and are exempt or chargeable to nil duty. The object of the scheme is to avoid the cascading burden of duty on inputs used in the production of final products liable to duty. Although the intermediate product in the present case was not leviable to duty at all and therefore did not strictly fit the language of exemption or nil rate, the rules did not contain any express prohibition against credit where a non-excisable intermediate product emerged during manufacture of specified dutiable final products from specified inputs. A construction that advances the object of the scheme was therefore required.

Conclusion: Credit of duty paid on the input could not be denied merely because the intermediate product was non-excisable. The assessee was entitled to the input credit.

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