Conditional exemption notification permits opting out after threshold, with duty at normal rate and eligible input credit.

A conditional exemption notification that does not require uninterrupted availing for the full financial year does not stop an assessee from opting out after crossing the exemption limit and thereafter paying duty at the normal rate with input credit. Where the assessee had already cleared goods at nil rate up to the prescribed limit and paid duty on later clearances, denial of credit was inconsistent with treating those later clearances as dutiable. The department's demand and denial of credit could not be sustained on the scheme of the notification, and the assessee's position was accepted.

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Issues: Whether the assessee, after crossing the exemption limit under Notification No. 5/98 as amended by Notification No. 5/99, could opt out of the notification, pay duty at the normal rate and avail input credit, and whether the department could still demand duty and deny credit on the footing of breach of the notification conditions.

Analysis: The notification did not contain any condition requiring the assessee to continue under the exemption scheme for the entire financial year. The assessee had already enjoyed the nil-rate clearance up to the prescribed limit, and for clearances thereafter it paid duty at the normal rate. In such a situation, the denial of credit was inconsistent with the view that the clearances beyond the limit were dutiable, because if credit was denied the duty structure would have to follow the concessional regime contemplated by the notification. The department's stand, therefore, could not be sustained on the facts and scheme of the notification.

Conclusion: The issue was decided in favour of the assessee. The demand, denial of credit, and departmental challenge were not sustainable.

Ratio Decidendi: A conditional exemption notification that does not require uninterrupted availing for the full financial year does not prevent an assessee from opting out after crossing the exemption limit and paying duty at the normal rate with eligible credit; a contrary demand cannot be sustained where the statutory scheme is applied inconsistently.

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