Input classification at time of use controls exemption eligibility; prior credit cannot preserve set-off after reclassification.

An exemption under Notification No. 201/79 was available only where the inputs used in manufacture fell under Item 68 at the time of use, and the appendix credit procedure was merely procedural. Although the inputs had been received and credit taken when they were still classifiable under Item 68, they were used after reclassification out of Item 68. That change meant the substantive condition for set-off was not met, so prior receipt and prior credit could not preserve the exemption. The set-off of duty was therefore not admissible and the exemption claim failed.

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Issues: Whether set-off of duty under Notification No. 201/79 remained available when the inputs, though received and credit taken while classifiable under Item 68, were used in manufacture after their reclassification out of Item 68.

Analysis: The notification granted exemption only to excisable goods manufactured with inputs falling under Item 68, subject to the procedure in the appendix. The credit-taking mechanism in the appendix was procedural and did not override the substantive condition that the inputs must fall under Item 68 at the time they were used in manufacture. Since the inputs were used after 16-3-1985, when they were no longer classifiable under Item 68, the essential condition for exemption was not satisfied. The change in classification therefore defeated the claim to set-off, notwithstanding prior receipt of the inputs and prior availment of credit.

Conclusion: The set-off of duty was not admissible, and the claim for exemption failed.

Ratio Decidendi: Where an exemption notification makes eligibility dependent on the inputs being classifiable under a specified tariff item at the time of their use in manufacture, prior receipt of the inputs and prior taking of credit do not preserve the exemption after reclassification.

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