Exemption on non-availment of input credit upheld where Revenue failed to prove breach of the notification condition.

Exemption under Notification No. 203/92-Cus. was upheld because the condition of non-availment of input stage credit was not shown to have been breached. The appellant, accepted as a merchant-manufacturer, produced a certificate from the Divisional Deputy Commissioner stating that no Cenvat credit had been availed, while the supporting manufacturer's payments through PLA and RG23B did not amount to credit under Rule 56A or Rule 57A. As the Revenue produced no documentary evidence proving availment of prohibited input credit, it failed to discharge the burden of establishing violation of the notification condition. The denial of exemption was therefore unsustainable, and the demand, interest and penalty could not survive.

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Issues: Whether the appellant was entitled to exemption under Notification No. 203/92-Cus. when the alleged condition of non-availment of input stage credit was disputed.

Analysis: The appellant was accepted as a merchant-manufacturer and had produced a certificate from the Divisional Deputy Commissioner certifying that no Cenvat credit had been availed. The supporting manufacturer had paid duty through PLA and RG23B, and the credit referred to as money credit under Rule 57K of the Central Excise Rules, 1944 was not credit under Rule 56A or Rule 57A. The Revenue produced no documentary evidence to show that the appellant or the supporting manufacturer had availed input stage credit. In such circumstances, the onus to prove violation of the notification condition was not discharged by the Revenue.

Conclusion: The denial of exemption was unsustainable and the appellant was entitled to relief.

Final Conclusion: The demand, interest and penalty could not be sustained as the condition regarding non-availment of input stage credit was held to be satisfied.

Ratio Decidendi: Where exemption is denied on the ground of alleged availment of input stage credit, the burden lies on the Revenue to prove such availment, and a certified merchant-manufacturer status with unrebutted proof of payment through a mechanism distinct from Rule 56A or Rule 57A credit is sufficient to defeat the demand.

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