Captive consumption exemption and Cenvat refund denied where exempt goods were cleared domestically before export.

Notification No. 67/95-C.E. did not exempt dyed cotton yarn captively consumed in making fully exempt cotton handloom rugs because the proviso withdraws the benefit where inputs are used for final products exempt from duty or chargeable to nil rate, unless a stated exception applies. The goods here were cleared in the Domestic Tariff Area with full exemption, not to a free trade zone, EOU, EHTP, STP, or under Notification No. 108/95-C.E., so the exemption was unavailable. Cenvat credit refund under Rule 5 was also denied because that relief applies only to exports under bond under Rule 19, and goods first cleared for home consumption and later exported are not treated as directly exported under bond.

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Issues: Whether Notification No. 67/95-C.E. exempted dyed cotton yarn captively consumed in the manufacture of fully exempt cotton handloom rugs that were ultimately cleared into the Domestic Tariff Area and thereafter exported, and whether duty paid on the dyed yarn could be taken as Cenvat credit and refunded under Rule 5 of the Cenvat Credit Rules, 2004.

Analysis: The exemption under Notification No. 67/95-C.E. was held inapplicable because the proviso withdraws the benefit where inputs are used in the manufacture of final products exempt from duty or chargeable to nil rate, unless the clearances fall within the specified exceptions. The final products here were not cleared to a free trade zone, export-oriented unit, electronic hardware technology park, software technology park, or under Notification No. 108/95-C.E., and the goods were simply cleared in the Domestic Tariff Area with full exemption. The plea for Cenvat credit and cash refund was rejected because such relief is available only where the final products are exported under bond in terms of Rule 19 of the Central Excise Rules, 2002. Goods first cleared for home consumption and later exported do not stand on the same footing as goods exported directly under bond.

Conclusion: The dyed cotton yarn was not entitled to exemption under Notification No. 67/95-C.E., and no Cenvat credit refund under Rule 5 was admissible. The issue was decided against the assessee and in favour of the Revenue.

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