Cenvat credit on goods cleared under Notification 214/86-CE was allowed despite the department's exempted-goods objection.

Cenvat credit of service tax paid on input services could be used against duty liability on dutiable goods cleared under Notification No. 214/86-CE where the department treated those clearances as exempted goods. The Tribunal noted that the goods cleared under the notification still resulted in duty being borne by the principal manufacturer, so the clearances could not be treated as exempt in a manner that barred credit. On that basis, the objection to set-off was rejected and the assessee was held entitled to avail the service tax credit against the duty payable.

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Issues: Whether the appellant was entitled to avail service tax credit against the duty liability on dutiable goods cleared under Notification No. 214/86-CE dated 25th March, 1986, when such clearances were treated by the department as exempted goods.

Analysis: The appellant manufactured dutiable goods and cleared part of the final products to the principal manufacturer under Notification No. 214/86-CE dated 25th March, 1986. The department denied set-off of service tax paid on input services on the premise that the goods manufactured under the notification were exempted. The Tribunal held that where the goods cleared under the notification still fetch duty from the principal manufacturer, there was no basis to deny Cenvat credit against the duty payable on the dutiable goods.

Conclusion: The appellant was entitled to the set-off of service tax credit against the duty liability, and the objection that the goods were exempted was rejected.

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