Cenvat credit and intermediate goods do not bar exemption where duty is paid before final manufacture.

Exemption under Notification No. 30/2004-Central Excise was held available where Cenvat credit had been taken on inputs used to make intermediate goods, but duty had been paid on those intermediate goods before they were used in the final product. The proviso barring exemption where credit is taken on inputs or capital goods was read in light of the governing precedent, which recognised that payment of duty at the intermediate stage preserved the exemption for the final product. Applying that ratio, the Tribunal found the exemption admissible and held that the confirmed demand, interest and penalty could not stand.

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Issues: Whether the assessee was entitled to exemption under Notification No. 30/2004-Central Excise dated 09.07.2004 when Cenvat credit had been taken on inputs used in the manufacture of intermediate goods, but duty had been paid on the intermediate goods before their use in the final product.

Analysis: The proviso to the exemption notification barred the benefit where credit of duty on inputs or capital goods had been taken under the Cenvat Credit Rules, 2004. The Tribunal noted that the controversy was covered by an earlier decision holding that where duty is paid on the intermediate product, exemption remains available for the final product notwithstanding credit taken on inputs used in the intermediate stage. The ratio of the earlier decision, affirmed by the Supreme Court, was treated as governing the present dispute.

Conclusion: The assessee was entitled to the exemption and the demand, interest and penalty confirmed by the lower authorities were unsustainable.

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