Chapter X clearances against CT-2 certificates are not exempted goods, so separate input accounts under Cenvat credit rules do not apply.

Clearances made under Chapter X procedure against CT-2 certificates are not treated as clearances of goods wholly exempt from duty or chargeable at nil rate, so Rule 6(3) of the Cenvat Credit Rules, 2004 does not require separate accounts for inputs in such cases. The reasoning distinguishes cases involving manufacture of both exempted and dutiable final products, where credit reversal principles may apply, and instead follows the earlier Tribunal view affirmed by the Supreme Court as directly governing this issue. On that basis, the demand for credit reversal, interest and penalty was held unsustainable and the appeal succeeded.

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Issues: Whether clearances made under Chapter X procedure against CT-2 certificates can be treated as clearances of exempted goods so as to attract Rule 6(3) of the Cenvat Credit Rules, 2004 and require maintenance of separate accounts for inputs.

Analysis: Clearances under Chapter X procedure were held not to be the same as clearances of goods wholly exempt from duty or chargeable to nil rate of duty. The decision relied upon by Revenue was found inapplicable because it dealt with reversal of credit where both exempted and dutiable final products were manufactured. The earlier Tribunal decision, upheld by the Supreme Court, directly covered the present controversy and supported the view that Rule 6(3) does not apply to such clearances.

Conclusion: The demand, interest and penalty were not sustainable, and the appeal was allowed in favour of the appellant.

Ratio Decidendi: Clearances under Chapter X procedure are not equivalent to clearances of exempted or nil-rated goods, and therefore the obligation under Rule 6(3) of the Cenvat Credit Rules, 2004 to maintain separate accounts does not arise.

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