Auxiliary duty credit could be used against basic excise duty on finished goods under the exemption scheme.

Notification No. 4/78-C.E. allowed unutilised auxiliary duty credit on inputs to be used against duty on finished excisable goods. The expression "duty" in the notification was read in the scheme of the Central Excises and Salt Act, 1944 as basic excise duty under Section 3, so the credit was not confined in the narrower manner suggested by the Revenue. A prior Supreme Court ruling on notifications under Rule 8(1) was treated as inapplicable. On that basis, auxiliary duty paid on raw materials was admissible as credit for payment of basic excise duty on the finished products.

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Issues: Whether credit of auxiliary duty paid on raw materials under Rule 56A of the Central Excise Rules, 1944 could be utilised towards payment of basic excise duty on the finished excisable goods, in the light of Notification No. 4/78-C.E. dated 10.01.1978 and the surrounding exemption scheme.

Analysis: The governing distinction was between auxiliary duty and basic excise duty. Notification No. 4/78-C.E. dated 10.01.1978 permitted the credit of auxiliary duty lying unutilised on inputs to be utilised towards payment of duty on finished excisable goods. The word used in the notification was "duty", and in the scheme of the rules that expression denoted the duty leviable under Section 3 of the Central Excises and Salt Act, 1944, namely basic excise duty. The earlier notification structure did not govern the present situation in the manner urged by the Revenue, and the Supreme Court decision relied upon, dealing with notifications under Rule 8(1), was held inapplicable.

Conclusion: Credit of auxiliary duty on the inputs was admissible for payment of basic excise duty on the finished products, and the assessee's contention was accepted.

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