Input credit reversal can preserve exemption where no double benefit remains after exempted goods are removed.

Exemption under Notification No. 30/2004-CE remains available where credit taken on inputs used in exempted goods is reversed after removal, because the condition against credit is aimed at preventing double benefit of exemption and credit. Where exempted and dutiable goods are manufactured together and input segregation is not reasonably practicable, reversal of the credit attributable to exempted goods satisfies the notification condition, especially when the reversal is reflected in returns and no double benefit survives. On that basis, the exemption was treated as admissible and the Revenue challenge failed.

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Issues: Whether exemption under Notification No. 30/2004-CE is admissible when the credit taken on inputs used in exempted goods is reversed after removal of such goods.

Analysis: The Tribunal applied the settled principle that the object of a condition prohibiting availment of credit is to prevent double of exemption and credit. It relied on the rule laid down in precedent that where exempted and dutiable goods are manufactured together and segregation of inputs is not reasonably possible, reversal of the credit attributable to exempted goods satisfies the condition attached to the exemption. The fact that the credit is reversed later does not, by itself, defeat the exemption when the assessee has reflected the reversal in returns and no double benefit remains.

Conclusion: The exemption was held to be admissible despite reversal of credit after removal of the exempted goods, and the Revenue appeals were rejected.

Final Conclusion: The assessee retained the exemption benefit because reversal of the attributable credit was treated as sufficient compliance with the notification condition, leaving no basis to sustain the demand.

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