Notification 108/95-C.E. exemption for ADB-funded projects barred Rule 6 reversal of Cenvat credit

Notification No. 108/95-C.E. was applied to supplies made to projects funded by the Asian Development Bank, because the Bank was treated as an international organisation for purposes of the notification. The notification's provisos were held to be procedural, dealing with certificate and compliance requirements, and could not be used to deny the substantive exemption where the underlying supply qualified. On that basis, the Rule 6 mechanism under the Cenvat Credit Rules, 2004 did not apply, and reversal of 10% of the clearance value was not sustainable.

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Issues: Whether goods supplied to projects funded by the Asian Development Bank were covered by Notification No. 108/95-C.E. so as to exclude the application of Rule 6(1), Rule 6(2) and Rule 6(3) of the Cenvat Credit Rules, 2004, and thereby negate the demand for reversal of 10% of the clearance value.

Analysis: The exemption under Notification No. 108/95-C.E. is contained in the main charging exemption for supplies to the United Nations or an international organisation or to projects funded by them, while the provisos merely prescribe the procedure and certificate requirements for different categories of organisations. The Asian Development Bank falls within the expression an international organisation for the purpose of the notification, as the explanatory definition refers to organisations to which the Central Government has declared the Schedule to the United Nations (Privileges and Immunities) Act, 1947 applicable, and the materials on record showed such application to the Asian Development Bank. Once the goods were supplied to a project funded by such organisation and the notification benefit was available, the Rule 6 reversal mechanism did not apply. The demand based on the contrary view was therefore unsustainable.

Conclusion: The demand for reversal of 10% under Rule 6 of the Cenvat Credit Rules, 2004 was not justified and the issue was decided in favour of the assessee.

Ratio Decidendi: Where exempted goods are supplied to a project funded by an international organisation covered by Notification No. 108/95-C.E., the procedural requirements in the provisos cannot be used to deny the substantive exemption or to apply Rule 6 reversal.

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