Broad exemption for scientific equipment covered DG sets, but exempt manufacture barred retention of Cenvat input credit.

A broad construction of the exemption for scientific and technical instruments, apparatus, equipment, accessories and spare parts supplied to a public funded research institution brought DG sets within Notification No. 10/1997, so the exemption was admissible. Once the clearances were treated as exempt, the assessee could not retain Cenvat credit on inputs used to manufacture those exempted DG sets, and any inadmissible credit had to be reversed. The note thus records partial relief on exemption, but confirms ineligibility to keep input credit for exempt manufacture.

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Issues: (i) Whether DG sets manufactured and supplied to a public funded research institution were eligible for exemption under Notification No. 10/1997 dated 01.03.1997. (ii) Whether, upon grant of exemption, the assessee was entitled to retain Cenvat credit on inputs used in manufacture of the exempted goods.

Issue (i): Whether DG sets manufactured and supplied to a public funded research institution were eligible for exemption under Notification No. 10/1997 dated 01.03.1997.

Analysis: The notification granted exemption to scientific and technical instruments, apparatus, equipment, accessories and spare parts supplied to a public funded research institution. The institution receiving the goods was not in dispute. The only objection was that DG sets were not scientific or technical instruments or equipment. A wide interpretation of the exemption was applied, and the DG sets were treated as covered by the notification.

Conclusion: The exemption was admissible in favour of the assessee.

Issue (ii): Whether, upon grant of exemption, the assessee was entitled to retain Cenvat credit on inputs used in manufacture of the exempted goods.

Analysis: Once the clearances were held exempt, the inputs used for manufacture of such exempted goods could not carry retained Cenvat credit. The matter of wrongful availment of credit was left to be examined by the lower authorities, and the assessee was required to reverse any inadmissible credit.

Conclusion: The assessee was not entitled to Cenvat credit on inputs used for the exempted DG sets.

Final Conclusion: The appeal succeeded on the exemption question, but the consequent ineligibility to retain input credit was affirmed, resulting in only partial relief to the assessee.

Ratio Decidendi: An exemption notification covering scientific and technical instruments, apparatus and equipment supplied to a public funded research institution can extend to DG sets on a broad construction, and exemption of the final product disallows retention of Cenvat credit on inputs used for that exempt manufacture.

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