Cenvat credit on machinery parts remained admissible despite partly exempt clearances of the final product.

Cenvat credit on parts and consumables used as machinery components in capital goods for manufacture of texturised yarn was held admissible where the assessee took credit in the prescribed manner and the goods qualified as eligible inputs or capital goods. The fact that final products were cleared partly under exemption notifications and partly on payment of duty did not, by itself, justify reversal of proportionate credit when the credit related to items used in the manufacturing machinery. The demand for reversal was therefore rejected.

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Issues: Whether Cenvat credit taken on parts and consumables used in capital goods installed for manufacture of texturised yarn was inadmissible merely because the final products were cleared partly under exemption notifications and partly on payment of duty.

Analysis: The credit related to items used as parts of the machinery and capital goods employed in manufacture of the same goods for which the assessee availed the benefit of Notification Nos. 29/2004 and 30/2004. The record showed that the assessee had taken credit in the prescribed manner and that the goods on which credit was taken were eligible inputs or capital goods. In such circumstances, the demand to reverse proportionate credit on the footing that exempted clearances were also made was found to be misdirected.

Conclusion: The credit was held to be admissible and the demand for reversal was rejected.

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