Cenvat account debit mistake cannot defeat exemption where input credit was not taken and substantive conditions were met.

Exemption under Notification No. 10/02-C.E. could not be denied merely because duty on the exempted product was debited from the Cenvat credit account instead of being paid through cash or account current, where no Cenvat credit had been taken on the inputs used for that product. The substantive condition of non-availment of input credit was satisfied, and the wrong account entry was a curable clerical error capable of correction by recasting the accounts. Treating the Cenvat account and account current as equivalent for this purpose did not defeat the notification's object, and denial of exemption on this accounting mistake was contrary to law.

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Issues: Whether exemption under Notification No. 10/02-C.E. dated 01.03.2002 was deniable merely because duty on the exempted product was debited from the Cenvat credit account instead of being paid in cash or through account current, when no Cenvat credit was taken on the inputs used for that product.

Analysis: The condition regarding non-availment of Cenvat credit on inputs was satisfied. The dispute arose only from mistaken debits between the Cenvat account and the current account. The duty payments made from the wrong account did not amount to payment from a prohibited source in substance, and the error was capable of being corrected by recasting the accounts. The notification's object was not defeated, and denial of exemption while simultaneously denying input credit would be contrary to law. The reasoning treating Cenvat account and account current as equivalent for this purpose was applied.

Conclusion: The exemption could not be denied on the ground of the accounting error, and the assessee was entitled to relief.

Ratio Decidendi: Where the substantive condition for exemption is met, a mistaken debit between duty accounts is a curable clerical error and does not by itself forfeit the exemption.

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