Exemption eligibility and used credit defence must be examined before sustaining duty recovery demand

A demand raised after disallowance of credit cannot be sustained without examining the assessee's claim to exemption under Notification No. 6/2000-C.E. Where the credit had already been utilised and the proceeding was, in substance, for recovery of duty, the assessee was entitled to raise any defence going to liability, including exemption eligibility. Because the factual basis for the exemption claim was not specifically examined by the lower authorities, the matter required fresh verification. The orders below were set aside and the case was remanded to the original authority for a fresh decision after hearing the assessee.

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Issues: Whether the demand arising from disallowance of credit could be sustained without examining the assessee's claim to exemption under Notification No. 6/2000-C.E., and whether the matter required fresh verification of the relevant facts.

Analysis: The credit taken had been utilised and the proceedings were in substance for recovery of duty. In resisting such demand, the assessee was entitled to raise any defence bearing on the liability, including eligibility for exemption. The claim for exemption could not be rejected without examining the relevant factual foundation, and the authorities below had not specifically dealt with that question.

Conclusion: The orders of the lower authorities were set aside and the matter was remanded to the original authority for fresh decision after hearing the assessee.

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