Cenvat credit reversal on returned goods exported under bond was held unsustainable where no duty was payable.

Cenvat credit reversal could not be demanded on returned goods exported under bond without payment of duty, because the provisions invoked applied to domestic removal or to duty-paid goods received for re-making, refining or similar treatment. As the goods were not sold in the domestic market and no duty was paid on export clearance, a demand based on the lower export value had no legal foundation. The CESTAT held the demand unsustainable and set aside the impugned order with consequential relief.

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Issues: Whether the department could require reversal of Cenvat credit on goods returned by the purchaser and exported under bond, by invoking Rule 3(4)(b) of the Cenvat Credit Rules and Rule 16 of the Central Excise Rules, 2002.

Analysis: The returned goods were exported under bond without payment of duty. The cited provisions contemplated removal of inputs as such or receipt of duty-paid goods into the factory for re-making, refining, re-conditioning, or similar treatment. Those provisions did not govern goods exported under bond where no duty was payable. Since the goods were not sold in the domestic market and duty had not been paid on their clearance for export, the demand for differential reversal of credit based on the lower export value had no legal foundation.

Conclusion: The demand for reversal of Cenvat credit was unsustainable and the issue was decided in favour of the appellant.

Final Conclusion: The appeal succeeded and the impugned order was set aside with consequential relief.

Ratio Decidendi: Cenvat credit reversal cannot be demanded under provisions applicable to domestic removal or duty-paid reprocessing where the returned goods are exported under bond without payment of duty.

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