Credit reversal under Rule 57CC must track the immediate product made from inputs, not a later assembled product.

For credit reversal under Rule 57CC, the relevant final product is the immediate product manufactured from the inputs, not a later assembled product to which that product is merely a component. Pig iron and foundry chemicals were used directly to make castings, and the provision required a direct nexus between those inputs and the exempt final product. On that basis, reversal had to be calculated with reference to the castings rather than the value of the captive power driven pumps, because treating the pumps as the relevant final product would disconnect the adjustment from the actual inputs used and burden exempt goods.

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Issues: Whether, for the purpose of Rule 57CC, the reversal of credit was to be computed on the value of the captive power driven pumps or on the value of the castings that were the immediate output of the inputs.

Analysis: The inputs, namely pig iron and foundry chemicals, were used directly in the manufacture of castings. The castings were themselves a final product, and the record did not justify treating the later-assembled pumps as the relevant final product for credit reversal. The scheme of the provision required a direct nexus between the inputs and the exempt final product. Treating the pumps as the final product would disconnect the credit adjustment from the actual inputs used and would, in substance, burden exempt goods. The earlier line of decisions taking the same view was accepted as correctly reflecting the legal position.

Conclusion: Reversal under Rule 57CC had to be worked out with reference to the castings, not the value of the power driven pumps, and the assessee's stand was correct.

Ratio Decidendi: For credit reversal under Rule 57CC, the relevant final product is the immediate product manufactured from the inputs, and not a later assembled product to which the immediate product is merely a component, where the provision requires a direct input-output relationship.

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