Strict SSI exemption conditions: using capital goods credit in breach of the notification disentitles the assessee from the full turnover benefit.

Notification No. 8/99-C.E. granted phased SSI exemption only subject to its specified conditions, including the bar on using capital goods credit for duty on exempt clearances. Once the assessee elected to avail the exemption, it had to comply with the conditions for the relevant turnover limit as a whole; the benefit was not clearance-wise at the assessee's choice. A single breach of that substantive condition during the exemption period could not be confined to one clearance, and later cash payment did not cure the earlier violation. Strict construction of exemption notifications therefore meant non-fulfilment of the condition disentitled the assessee from the SSI exemption for the aggregate clearances up to one crore.

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Issues: Whether the assessee, having once utilised capital goods credit in breach of condition (v) of Notification No. 8/99-C.E., remained entitled to the SSI exemption for the entire aggregate clearances up to rupees one crore for the financial year.

Analysis: Notification No. 8/99-C.E. granted phased SSI exemption, but only subject to the conditions in paragraph 2. One such condition barred utilisation of capital goods credit for payment of duty on the clearances enjoying the exemption. The exemption was not clearance-wise at the assessee's option; once the option was exercised, it had to be continued for the relevant limit in accordance with all the conditions. A single breach of a substantive condition during the period of availing the exemption could not be confined only to the particular clearance in respect of which the breach occurred. The later cash payment did not erase the fact that the credit had been utilised in violation of the notification while the exemption was being enjoyed. Since exemption notifications are to be strictly construed, non-fulfilment of a stipulated condition disentitles the assessee from the benefit.

Conclusion: The assessee was not entitled to the SSI exemption for the entire clearances up to rupees one crore, and the Revenue's challenge succeeded.

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