Cenvat credit on export-only goods denied where hose assemblies were not used in manufacture and incidental packing did not qualify them as inputs.

Cenvat credit is not admissible on hose assemblies procured solely for export under bond where the goods are not used in the manufacture of any final product. Incidental testing, inspection and packing before export do not, on these facts, convert the purchased goods into eligible inputs for the credit scheme. A claim based on parity with rebate available to merchant exporters cannot override the specific statutory framework, and a cited earlier decision on different facts was held inapplicable. The result is that credit with interest remains recoverable, and the reduced penalty was upheld.

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Issues: Whether Cenvat credit was admissible on hose assemblies procured solely for export under bond where the goods were subjected to testing, inspection and packing before export.

Analysis: The credit scheme is intended to relieve the duty element embedded in inputs used in the manufacture of final products. Credit is not available where goods are procured only for export and are not used in the manufacture of any final product. The processes of testing, inspection and packing, on the facts, did not convert the purchased hose assemblies into inputs eligible for credit. The contention based on parity with rebate available to merchant exporters could not override the specific statutory scheme. The cited earlier decision on different facts did not assist the appellant.

Conclusion: Cenvat credit was not admissible and the demand of credit with interest was sustainable. The penalty as reduced by the lower appellate authority was upheld.

Ratio Decidendi: Cenvat credit cannot be taken on goods procured solely for export under bond when those goods are not used in the manufacture of final products, and incidental testing or packing does not by itself make such goods eligible inputs under the credit scheme.

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