Cenvat credit lapse rule inapplicable where wholesale exemption is not based on clearance thresholds

Rule 57H(7) of the Central Excise Rules applies only where a manufacturer opts for an exemption linked to the value or quantity of clearances in a financial year. Because the final product became wholly exempt under Notification No. 07/2000 and the exemption was not conditional on such clearance-based thresholds, the statutory condition for lapse of accumulated Cenvat credit was absent. The credit therefore did not lapse, and the demand based on its utilisation could not be sustained.

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Issues: Whether Rule 57H(7) of the Central Excise Rules applied so as to make the accumulated Cenvat credit lapse when the assessee's final product became wholly exempt under Notification No. 07/2000 dated 01.03.2000.

Analysis: Rule 57H(7) applies only where a manufacturer opts for exemption under a notification based on the value or quantity of clearances in a financial year. The exemption in question was a wholesale exemption and was not dependent on the assessee's value or quantity of clearances. As the statutory condition for lapse of credit was absent, the accumulated credit could not be treated as lapsed, and the demand raised on the basis of utilisation of such credit could not survive.

Conclusion: Rule 57H(7) was held inapplicable, the Cenvat credit did not lapse, and the demand was unsustainable.

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