Choice of beneficial exemption notification protects capital goods Cenvat credit where goods are not used exclusively for exempted manufacture.

Where two exemption notifications are available, an assessee may choose the more beneficial unconditional notification, and the department cannot require adoption of a nil-rate exemption merely because input duty credit was not taken. On that basis, goods cleared partly on duty and partly under full exemption could not be treated as having been used exclusively in the manufacture of exempted goods. The denial of capital goods Cenvat credit was therefore unsustainable, and the related demand, interest, and penalty could not stand.

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Issues: Whether capital goods Cenvat credit could be denied on the footing that the assessee, having not availed input duty credit, ought to have cleared goods only under the nil-rate exemption and not under the concessional 4% notification, and whether the capital goods were therefore used exclusively for manufacture of exempted goods.

Analysis: Notification No. 29/2004-C.E. prescribed a concessional rate of duty of 4% ad valorem without any condition, while Notification No. 30/2004-C.E. granted full exemption subject to non-availment of input duty credit. The absence of input duty credit did not disable the assessee from opting for the unconditional concessional notification. Where two exemption notifications are available, the assessee may choose the one more beneficial to it, and the department cannot compel adoption of the nil-rate notification. Since the assessee cleared goods both on payment of duty and under full exemption, the capital goods could not be treated as having been used exclusively in the manufacture of exempted goods.

Conclusion: The denial of capital goods Cenvat credit was unsustainable and was set aside in favour of the assessee.

Final Conclusion: The appeals succeeded and the demand, interest, and penalty based on ineligibility to capital goods credit could not be sustained.

Ratio Decidendi: An assessee entitled to more than one exemption notification may opt for the unconditional and more beneficial notification, and capital goods credit cannot be denied merely because the assessee did not avail input duty credit and had the choice to clear some goods at concessional duty.

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