Reversal of Cenvat credit before notice supported exemption benefit and interim stay of recovery in a body-building dispute

Reversal of the entire Cenvat credit on inputs used in body building before issuance of the show-cause notice was treated as prima facie compliance with the exemption condition under Notification No. 6/2006-C.E., which barred availment of such credit. On that basis, the Tribunal found that the exemption could not be denied at the interim stage and granted waiver of pre-deposit with stay of recovery. The stated principle is that complete reversal before the show-cause notice satisfies the notification condition for purposes of interim relief.

---

---

Issues: Whether reversal of the Cenvat credit on inputs used in body building before issuance of the show-cause notice entitled the appellant to the benefit of the exemption notification and, consequently, waiver of pre-deposit and stay of recovery.

Analysis: The demand arose from denial of the exemption under Notification No. 6/2006-C.E. on the ground that the condition prohibiting availment of Cenvat credit on inputs used in body building had been breached. The appellant had taken credit on certain duty-paid inputs used in the body-building activity but reversed the entire credit before issuance of the show-cause notice. On that basis, the Tribunal found, prima facie, that the appellant had complied with the notification condition and that the exemption could not be denied at the interim stage.

Conclusion: The appellant was held entitled, prima facie, to the benefit of the notification, and waiver of pre-deposit with stay of recovery was granted.

Ratio Decidendi: Where the entire Cenvat credit taken on inputs is reversed before issuance of the show-cause notice, the notification condition against availing such credit is treated as satisfied for the purpose of interim relief.

---