Strict construction of exemption notifications defeated revenue neutrality plea and justified pre-deposit for excess exemption availed later.

Notification No. 56/2002-C.E. was applied strictly: the exemption operated only to the extent the duty liability was not already covered by available Cenvat credit, and the available credit had to be exhausted first. The majority therefore treated the prescribed sequence of payment as mandatory and held that failure to use the credit during the relevant period defeated the plea of revenue neutrality, so pre-deposit of the excess exemption availed from 1-4-2008 onwards was required. A limitation plea was also regarded as prima facie unavailable at the stay stage. The dissent considered the matter revenue neutral and would have waived pre-deposit.

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Issues: Whether pre-deposit of the duty and penalty attributable to the alleged excess exemption availed from 1-4-2008 onwards was liable to be waived on the plea of revenue neutrality, or whether the mandatory conditions of Notification No. 56/2002-C.E. required pre-deposit.

Analysis: The notification granted exemption only to the extent duty liability was not covered by available Cenvat credit and required the available credit to be exhausted first. The majority held that exemption notifications must be strictly construed, that the prescribed mode and sequence of payment could not be bypassed, and that failure to avail and utilise credit during the relevant period defeated the claim of revenue neutrality. The claim of limitation was also treated as prima facie unavailable at the stay stage in view of the circumstances noted.

Conclusion: Pre-deposit of the excess exemption availed from 1-4-2008 onwards was directed, and waiver was declined.

Dissenting Opinion: Member (Judicial) took the view that the matter was revenue neutral and that pre-deposit was not warranted, but the majority did not accept that approach for the period after 1-4-2008.

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