Input credit cannot be claimed on exemption-based set-off amounts; only duty actually paid qualifies for credit.

Credit was confined to duty actually paid, so an amount shown as set-off under Notification No. 432/86-C.E. could not be treated as eligible input credit. The notification was construed as granting exemption to beta naphthol to the extent of duty payable on naphthalene used in manufacture; on that basis, the set-off amount was not duty paid on beta naphthol. Credit was therefore admissible only to the extent duty had been paid otherwise than by such set-off, and the amount representing the exemption-based adjustment was inadmissible.

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Issues: Whether credit of duty was admissible on beta naphthol to the extent the duty shown in the gate pass represented a set-off allowed under Notification No. 432/86-C.E.

Analysis: Notification No. 432/86-C.E. was construed as an exemption notification, under which beta naphthol was exempt from duty to the extent of the duty payable on naphthalene used in its manufacture. On that construction, the amount shown as set-off was not duty actually paid on beta naphthol and therefore could not qualify as credit in the hands of the respondent. Credit was available only to the extent of duty paid otherwise than by such set-off.

Conclusion: The credit taken on the amount representing the set-off was inadmissible and the appeal succeeded.

Final Conclusion: Credit under the scheme was confined to duty actually paid, and any amount merely adjusted by exemption could not be treated as eligible input credit.

Ratio Decidendi: Where a notification grants exemption to the extent of duty payable on an input used in manufacture, the amount so exempted cannot be treated as duty paid for the purpose of availing credit.

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