Cenvat credit and exemption notification: stay granted while dispute over duty payment through credit remained open

Eligibility for the exemption depended on whether inadmissible Cenvat credit had been taken and whether such credit could be used to pay duty on goods cleared under the notification. The Tribunal noted that no inadmissible credit had been shown on the material before it, but held that the notification could not be read apart from Rule 3(4) of the Cenvat Credit Rules, 2004, which barred utilisation of Cenvat credit for payment of duty on exempted goods. It therefore found no strong prima facie case on merits, yet granted waiver of balance dues and stay against recovery during the appeal, subject to compliance with the directed option of reversing credit with interest or paying duty in cash within the stipulated time.

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Issues: Whether waiver of balance dues and stay against recovery should be granted pending appeal in view of the dispute relating to utilisation of Cenvat credit for payment of duty on goods covered by the exemption notification.

Analysis: The availability of the exemption depended upon whether credit of duty on inputs or tax on input services had been taken and whether Cenvat credit could be utilised for payment of duty on goods cleared under the relevant notification. The Tribunal held that, on the material before it, the appellant had not been shown to have taken inadmissible credit, but the notification could not be read in isolation from Rule 3(4) of the Cenvat Credit Rules, 2004, which barred utilisation of Cenvat credit for payment of duty on goods enjoying the exemption. On that basis, the appellant was found to have no strong prima facie case on merits, but the matter was kept open for final hearing and an option was given to comply by either reversing credit with interest or paying duty in cash under the applicable notification.

Conclusion: Balance dues were waived and stay against recovery was granted during pendency of the appeal, subject to compliance with the directed option within the stipulated time.

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