Set-off on duty-paid inputs for specified manufacture cannot be denied merely because credit was used before verification.

Duty-paid Naphthalene issued for manufacture of Dye-intermediates qualified for set-off under Notification No. 432/86-C.E. because the record did not show that the inputs were unused or unrelated to the specified final product; the credit could not be denied merely on that basis. The Board's guidance also indicated that set-off is taken on duty-paid excisable goods issued for manufacture, not only on the duty contained in the finished goods. However, the appellants should have awaited departmental verification before using the credit, even though the penalty was ultimately held unwarranted.

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Issues: Whether the appellants were entitled to utilise set-off under Notification No. 432/86-C.E. on the duty-paid Naphthalene used in the manufacture of Dye-intermediates, and whether penalty was sustainable for utilising the credit before departmental verification.

Analysis: The exemption under Notification No. 432/86 was available to the extent of duty already paid on inputs actually used in the manufacture of the specified final product. The record did not show that the Naphthalene issued to the appellants had not been used for the manufacture of Dye-intermediates, nor was there any finding that the accumulated credit was unrelated to duty-paid inputs. Paragraph 4 of Enclosure II to the Board's letter provided that set-off is to be taken on the quantity of duty-paid excisable goods issued for manufacture, and it is not confined to the duty on the quantity actually contained in the finished goods. The appellants, however, ought to have awaited verification by the Assistant Collector before utilising the credit.

Conclusion: The appellants were entitled to the benefit of set-off under Notification No. 432/86-C.E., and the penalty was not warranted.

Ratio Decidendi: Where duty-paid inputs are shown to have been issued for manufacture of the specified final product, set-off cannot be denied merely because the full utilisation of credit preceded departmental verification, unless the credit is shown to be unrelated to such inputs.

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