Irrevocable exemption option under excise notification: mid-year shift to full duty to boost buyer credit was held impermissible.

An exemption option under Notification No. 9/2003-CE had to be exercised before the first clearance and could not be withdrawn during the financial year. The assessee's payment of duty at the full rate mid-year, before crossing the prescribed clearance limit and through Cenvat credit, was treated as an impermissible withdrawal of that option. Because the arrangement was used to pass higher credit to buyers and resulted in revenue loss, the excess Cenvat credit was held irregular and recoverable. The demand was sustained and the Revenue's position accepted.

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Issues: Whether an assessee, having opted for exemption under Notification No. 9/2003-CE, could discontinue the concessional duty scheme mid-year by paying duty at the full rate before crossing the prescribed clearance limit and thereby pass on higher Cenvat credit to buyers, and whether the resulting excess credit was recoverable.

Analysis: The exemption notification required the option to be exercised before the first clearance and prohibited withdrawal during the remaining part of the financial year. The assessee, after opting for the notification, paid duty at the full rate instead of the concessional rate before the threshold of clearances was reached, with the duty discharged entirely through Cenvat credit. This was treated as a mid-year withdrawal of the option in breach of the notification. The Tribunal held that the practice was adopted to enable buyers to avail greater credit, which caused revenue loss, and therefore the credit availed in excess was irregular and recoverable.

Conclusion: The demand was sustainable, and the appeal was rejected in favour of the Revenue.

Final Conclusion: Breach of the conditions attached to an exemption option cannot be used to secure higher credit flow to buyers, and the irregularly availed credit remains recoverable.

Ratio Decidendi: Where an exemption notification makes the option irrevocable for the financial year, a manufacturer cannot effectively withdraw that option mid-year by paying duty at the full rate to facilitate higher Cenvat credit to buyers; such conduct violates the notification and justifies recovery of the irregular credit.

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