Cenvat credit condition in exemption notification held inapplicable to imported silk yarn and silk fabric, defeating countervailing duty demand.

Notification No. 30/2004-C.E. exempted the imported silk yarn and silk fabric, subject to denial of exemption where Cenvat credit on duty-paid inputs had been taken under the Cenvat Credit Rules, 2002. The operative question was whether that condition could apply when, during the relevant period, a domestic manufacturer of silk yarn or silk fabric could not realistically have taken such credit because raw silk and silk filament were dutiable at nil rate and silk yarn used for fabric did not attract countervailing duty. On that basis, the condition was treated as inapplicable to the imports, and countervailing duty was not payable.

---

---

Issues: Whether the condition in Notification No. 30/2004-C.E. dated 9-7-2004, denying exemption where credit of duty on inputs has been taken under the Cenvat Credit Rules, 2002, applied to imported silk yarn and silk fabric so as to justify levy of countervailing duty.

Analysis: The imported goods were eligible for exemption under the notification, subject to the stated condition. The decisive question was whether, during the relevant period, an Indian manufacturer of silk yarn or silk fabric could in fact have taken Cenvat credit on duty-paid inputs. The finding was that raw silk or silk filament, being dutiable at nil rate, was not liable to excise duty, and silk yarn used for fabric also did not attract countervailing duty during the material period. As no input-duty credit could realistically have been availed by a domestic manufacturer, the condition attached to the notification was held to be inapplicable to the imported goods.

Conclusion: The demand of countervailing duty on the imported silk yarn and silk fabric was not sustainable, and the assessee was entitled to the exemption.

---