CENVAT credit reversal and exemption benefit: late reversal before notice defeated denial of exemption and tax demand.

Exemption under Notification No. 30/2004-CE could not be denied merely because CENVAT credit was reversed after the goods were cleared, where the credit was in fact reversed before the show cause notice. The Tribunal followed its consistent view that such reversal cures the objection to exemption and removes the basis for denying the notification benefit. On the facts, there was also no suppression with intent to evade duty, so the extended period was not available. The demand of duty, interest and penalty was therefore unsustainable and was set aside in favour of the assessee.

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Issues: Whether the assessee could be denied exemption under Notification No. 30/2004-CE on the ground that CENVAT credit was reversed after opting for the exemption, and whether the consequential demand of duty, interest and penalty could be sustained.

Analysis: The credit lying in the CENVAT account had been reversed before the show cause notice was issued. The Tribunal followed its earlier consistent view that the benefit of the exemption notification cannot be denied merely because the reversal was made after clearance of the goods, and that such reversal negates any allegation warranting denial of the exemption. The Tribunal also noted that, on the facts, there was no suppression with intent to evade duty so as to justify invocation of the extended period.

Conclusion: The denial of exemption was unsustainable, and the demand of duty, interest and penalty was set aside in favour of the assessee.

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