Cenvat credit on imported inputs re-exported for quality rejection cannot be denied solely on the basis of import origin.

Imported inputs on which Cenvat credit was taken were re-exported to the foreign supplier because of quality rejection, and the Tribunal treated such re-export as covered by the applicable drawback and circular-based relief. The departmental circulars were read to allow export of inputs as such under bond without payment of duty, with no restriction excluding imported inputs from that benefit. Section 74 of the Customs Act was noted as relevant to re-export, and the earlier decision in RFH Metal Castings was followed. Credit therefore could not be denied merely because the inputs were imported and then re-exported for quality reasons.

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Issues: Whether Cenvat credit taken on imported inputs was required to be reversed when the inputs, rejected for quality reasons, were re-exported to the foreign supplier, and whether the benefit of the departmental circulars and drawback provisions applied to such re-export.

Analysis: The inputs were imported, credit of CVD was taken, and the same goods were later re-exported to the foreign supplier because of quality problems. The available drawback mechanism under Section 74 of the Customs Act was noted as relevant to re-export, and the circulars relied upon were read as covering export of inputs as such without limiting the benefit only to domestically procured inputs. The clarification in the circular dated 29-8-2000 recognised that inputs or capital goods may be exported under bond without payment of duty, and that there is no bar to such removal for export. The Tribunal's earlier decision in RFH Metal Castings was also followed.

Conclusion: The credit could not be denied merely because the imported inputs were re-exported, and the appeal was allowed with consequential relief.

Ratio Decidendi: Where imported inputs on which Cenvat credit has been taken are re-exported to the supplier for quality reasons, the export is not outside the benefit of the applicable drawback and circular-based relief merely because the inputs were imported, and credit cannot be denied on that ground alone.

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