Cenvat credit on domestic inputs does not defeat duty-free import authorisation benefit under the exemption notification.

Cenvat credit on locally procured inputs used in the export product does not defeat entitlement to Notification No. 40/2006-Cus. where the exemption condition bars credit only in relation to materials imported or procured against the authorisation. The Tribunal followed its earlier view that domestic credit, taken on inputs used in manufacture of the export goods, does not breach the notification condition. It accepted the clarification relied on by the assessee and confirmed that availment of such credit does not forfeit the duty-free import authorisation benefit.

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Issues: Whether availment of Cenvat credit on locally procured inputs disentitled the appellant from the benefit of Notification No. 40/2006-Cus. in respect of imports made under duty free import authorisation.

Analysis: The condition in the notification required that Cenvat credit under the Cenvat Credit Rules, 2004 should not have been availed in respect of materials imported or procured against the authorisation. The dispute was identical to an earlier decision of the Tribunal, which had already held that credit taken on domestic inputs used in the export product did not violate the condition. The Tribunal followed that view and accepted the clarification relied upon in support of the assessee's case.

Conclusion: The condition in the notification was not breached by availment of credit on locally procured goods, and the appellant remained entitled to the notification benefit.

Ratio Decidendi: Where an exemption notification prohibits availment of credit only in relation to materials imported or procured against the authorisation, credit availed on domestic inputs used in the export product does not defeat the exemption.

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