Reversal of Cenvat credit can satisfy a non-availment condition when duty is paid at the fabrics stage.

Exemption under Notification No. 14/2002 was treated as available where yarn duty was paid at the fabrics stage with reversal of Cenvat credit, instead of at the spindle stage, because the assessee faced practical difficulty in identifying yarn consumption for fabrics cleared for export and home consumption. The validated trade notice permitting fabrics-stage payment was held to remain effective under the Central Excise Rules, 2001 and 2002. Reversal of Modvat/Cenvat credit was treated as equivalent to non-availment of credit for exemption purposes, and the demand for differential duty was not sustainable.

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Issues: Whether the assessee was entitled to the exemption under Notification No. 14/2002 when duty on yarn was paid at the fabrics stage with reversal of Cenvat credit, instead of payment at the spindle stage.

Analysis: The payment structure adopted by the assessee was necessitated by practical difficulty in ascertaining yarn consumption at the spindle stage for fabrics cleared both for export and home consumption. The Board's trade notice permitting payment of yarn duty at the fabrics stage was treated as continuing in force under the validating provisions of the Central Excise Rules, 2001 and the Central Excise Rules, 2002. The reversal of Modvat/Cenvat credit was held to amount to non-taking of credit for the purpose of the exemption condition, and the cited precedent supported the view that reversal could be effected even after clearance of the final product.

Conclusion: The assessee's mode of payment and reversal of credit did not violate the exemption conditions, and the demand for differential duty was not sustainable.

Ratio Decidendi: Reversal of credit satisfies a condition requiring non-availment of credit, and a validated trade notice permitting duty payment at the fabrics stage can be relied upon where payment at the spindle stage is impracticable.

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