CENVAT credit on duty-paid yarn cleared for export processing cannot be reversed when export is undisputed.

Duty-paid yarn sent by one unit to another for export processing under the relevant export notification did not attract reversal of CENVAT credit, since the Department did not dispute the export of the goods or the buyer's eligibility to process them for export. The CENVAT credit scheme permits clearance of duty-paid inputs for export or export processing without payment of duty when the movement is under the prescribed export procedure. As the ultimate export was not in question, the demand for reversal of credit, interest and penalty was held unsustainable.

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Issues: Whether duty-paid yarn sent by one unit to another unit for export processing without payment of duty under the relevant export notification attracted reversal of CENVAT credit and demand of duty, interest, and penalty.

Analysis: The Department did not dispute the export of the goods or the eligibility of the buyer to procure and process the yarn for export. The CENVAT credit scheme permits a manufacturer to clear duty-paid inputs as such for export or export processing without payment of duty, and the yarn had been sent under the export procedure contemplated by the notification. Since the ultimate export was not in question, the activity was held to be within the permissible legal framework.

Conclusion: The demand for reversal of credit, along with interest and penalty, was unsustainable and the assessee succeeded.

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