1986 (6) TMI 201 - AT - Central Excise

Issues Involved:
1. Whether the entire credit of input duty on barley malt could be utilized for payment of duty on Horlicks cleared from the Rajahmundry factory.
2. Whether there needs to be a co-relation between the input (barley malt) and the output (Horlicks) for availing the credit of input duty.

Detailed Analysis:

1. Utilization of Entire Credit of Input Duty:
The primary issue was whether HMM could utilize the entire credit of duty paid on barley malt towards the payment of duty on Horlicks cleared from the Rajahmundry factory. The Assistant Collector held that the utilization of the credit had to be limited to the extent the input was used in the quantity of Horlicks cleared on payment of duty. HMM contended that they were entitled to utilize the full extent of credit of the input duty towards payment of the duty on packed Horlicks without any co-relation between the input used and the output cleared.

2. Co-relation Between Input and Output:
The argument centered on whether there needed to be a co-relation between the input (barley malt) and the output (Horlicks) for availing the credit of input duty. HMM cited several decisions to support their contention that such co-relation was unnecessary, including:
- Paper Products Ltd., Bombay v. CCE, Bombay, 1984 (18) E.L.T. 507 (Tribunal): This decision implied that there is no strict co-relation between the input and output envisaged in Notification No. 201/79 unlike set-off notifications.
- Madras High Court judgment in E.I.D. Parry (India) Ltd., Madras v. Govt. of India and others, 1979 E.L.T. (J 253): The High Court took the view that there was no obligation on the part of the manufacturer to co-relate the input with the ultimate finished product, so long as there was complete utilization.
- Vikrant Tyres Ltd. v. CCE, Bangalore - 1985 (21) E.L.T.-620: The Tribunal held that the duty suffered by the input used in the manufacture of finished products which are dutiable and cleared on payment of duty would alone be available for being utilized for payment of duty on the finished products.

Tribunal's Findings:
The Tribunal found that Notification No. 201/79 confers exemption on the finished product from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs. The word "equivalent" implies that there must be some co-relation, though not necessarily an exact co-relation, between the input and the output.

- Paper Products Ltd. Case: The Tribunal noted that while this decision implied no strict co-relation, it did not support the proposition that the entire duty suffered by the input could be utilized for payment of duty on the finished product if only a portion of the finished product is cleared on payment of duty.
- E.I.D. Parry Case: The Tribunal distinguished this case on the grounds that the entire output was being cleared on payment of duty, unlike the present case where part of the finished product was removed without payment of duty.
- Vikrant Tyres Case: The principle set out in this case applied, indicating that the duty suffered by the input used in the manufacture of finished products which are dutiable and cleared on payment of duty would alone be available for being utilized for payment of duty on the finished products.

Conclusion:
The Tribunal concluded that the credit of the duty suffered by the input, namely, malted barley, could be utilized by the Rajahmundry factory only to the extent of the duty suffered by the input used in the manufacture of the finished product cleared from the factory on payment of duty. Duty suffered by the input used in the manufacture of finished product which was moved from the Rajahmundry factory to the packing stations without payment of duty could not be utilized towards payment of duty on the finished product cleared on payment of duty from the Rajahmundry factory. Consequently, the appeal was rejected.

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