CENVAT credit and small-scale exemption may be simultaneously availed for export and home clearances, with credit use allowed.

Accumulated CENVAT credit could be utilised for duty on home clearances while small-scale exemption was availed, and credit on inputs used for export production could also be simultaneously claimed. The Board's circular treated such simultaneous availment as permissible, allowing the credit to be used once clearances crossed the exemption limit or to be refunded under the Modvat scheme. The same reading was applied to the later exemption notification, and no valid basis was shown to block debit entries against accumulated credit before the specified clearance threshold was reached. On that footing, the demand and penalty were unsustainable.

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Issues: Whether the assessee was entitled to utilise accumulated CENVAT credit for payment of duty on home clearances while simultaneously availing the small-scale exemption and credit on inputs used for export production.

Analysis: The Board's circular recognised simultaneous availment of exemption and Modvat credit for export production and allowed the credit either to be used when clearances crossed the exemption limit or to be refunded under the Modvat scheme. The same interpretation was applied to the subsequent exemption notification, and no valid basis was shown for restricting debit entries against accumulated credit until the specified clearance threshold was reached.

Conclusion: The assessee was entitled to utilise the accumulated credit, and the demand and penalty were unsustainable.

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