Proforma credit on duty-paid inputs remained admissible where exempt intermediate goods were captively used in manufacture of the final product.

Proforma credit was held admissible on duty-paid stampings and laminations used to manufacture electric fans, even though the intermediate electric motors were exempt from duty. Credit could not be denied merely because the intermediate product was fully exempt where those goods were captively consumed within the factory for manufacture of the final product. On that basis, the revenue appeal was rejected.

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Issues: Whether proforma credit was admissible on duty-paid stampings and laminations used in the manufacture of electric fans when the intermediate electric motors were exempt from duty.

Analysis: The electric motors were not removed from the factory but were captively used in the manufacture of fans. It was held that credit cannot be denied merely because the intermediate product is fully exempt, so long as the exempt intermediate goods are consumed captively in the manufacture of the final product.

Conclusion: Proforma credit was admissible, and the revenue appeal was rejected.

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