Cenvat credit on duty-paid inputs cannot be denied because the supplier could have used a duty-free procedural route.

Cenvat credit remained admissible where inputs were actually cleared on payment of duty, because Notification No. 44/2001-C.E. (N.T.) operated as a procedural option under Rule 19 of the Central Excise Rules and did not compel duty-free clearance. The recipient exporter's credit entitlement depended on duty actually paid by the supplier, and it could not be denied on the basis that the supplier might have used a different clearance route. The DGFT circular on terminal excise duty refund in deemed exports did not govern this separate Cenvat credit question. On that basis, the demand, penalties and adverse orders were set aside.

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Issues: Whether Cenvat credit could be denied to the exporter recipient merely because the input supplier did not avail Notification No. 44/2001-C.E. (N.T.) and instead cleared the inputs on payment of duty, and whether the DGFT policy circular concerning TED refund affected such credit entitlement.

Analysis: Notification No. 44/2001-C.E. (N.T.) issued under Rule 19 of the Central Excise Rules was treated as a procedural mechanism giving the supplier an option, not as a mandatory command compelling clearance only without duty. The duty had in fact been paid by the suppliers, and the recipient exporter was entitled to take credit of duty actually paid on inputs. The DGFT circular dealt with refund of terminal excise duty in deemed exports and did not govern the separate issue of Cenvat credit of duty paid on inputs. The principle applied was that the recipient's assessment cannot be reopened on the premise that the supplier ought not to have paid duty.

Conclusion: Cenvat credit was admissible to the assessee, and the demand, penalties and adverse orders were unsustainable.

Final Conclusion: The impugned orders were set aside and all the appeals were allowed with consequential relief.

Ratio Decidendi: Where inputs are actually cleared on payment of duty, credit cannot be denied to the recipient merely because the supplier could have adopted a duty-free procedure under a procedural notification; the recipient's entitlement depends on duty actually paid, not on a hypothetical alternative route the supplier might have taken.

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