The battle between two of the top four in Division One South of the Evo Stik Northern Premier Division finished goalless after 90 minutes.
The Tulips had the better of the first half, but couldn’t find a way past an inspired home goalkeeper at the Dog & Duck ground.
An ankle injury to Paul Walker meant Spalding played the final 10 minutes with 10 men, but they survived to force the shoot-out.
The teams converted their first five spot-kicks apiece, but Spalding’s Jordan Lemon saw his penalty saved enabling Diamonds to convert their sixth kick from former Tulip Jake Newman and move into the quarter-finals of the Evo Stik League Cup competition.
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It’s the third season in a row Spalding have been knocked out of the competition after a penalty shoot out.