Cenvat credit reversal not required on export clearances to a 100% EOU under bond, as duty-free removal was permitted.

Cenvat credit on inputs and capital goods cleared as such under CT-2/CT-3 for onward export to a 100% EOU without payment of duty was held not to require reversal under Rule 3(4) of the Cenvat Credit Rules, 2002. The clearance was for export under bond and the goods were ultimately exported without duty, so the Board circulars and governing notification permitted such removal and the Rule 3(4) restriction did not apply. The notification conditions were treated as applicable to the consignee, not the consignor, and there was no material showing non-compliance by the assessee. Accordingly, the credit remained admissible and the demand for reversal was unsustainable.

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Issues: Whether Cenvat credit availed on inputs and capital goods cleared as such against CT-2/CT-3 for onward export to a 100% EOU without payment of duty required reversal under Rule 3(4) of the Cenvat Credit Rules, 2002.

Analysis: The clearance was made for export under bond and the goods were ultimately exported without duty. The Board circulars and the notification governing such clearances recognised that inputs or capital goods could be removed for export without payment of duty, and the restriction in Rule 3(4) did not apply to such export clearances. The conditions in the notification were held to be applicable to the consignee, not the consignor, and there was no material to show non-compliance by the assessee. On the facts, the credit taken on duty-paid inputs was held to remain admissible and no reversal was required.

Conclusion: The demand for reversal of Cenvat credit was not sustainable and the Revenue's appeal failed.

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