Exemption for Navy warship construction and Cenvat credit reversal were treated as sufficient to defeat the duty demands.

Exemption under Notification No. 64/95-Central Excise was treated as available where goods were supplied to Mazgaon Dock for use in constructing warships for the Indian Navy, because the notification required use in warship construction and production of the prescribed Navy certificate, not direct supply to the Navy. The demand on this count was therefore not sustainable. On Cenvat credit, reversal of the actual credit attributable to exempted goods before clearance was regarded as sufficient compliance, reinforced by the retrospective amendment to Rule 6 and supporting authorities, so the 8% demand under Rule 6(3)(b) was not leviable.

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Issues: (i) Whether exemption under Notification No. 64/95-Central Excise, as amended, was available for goods supplied to Mazgaon Dock for use in construction of warships of the Indian Navy; (ii) Whether reversal of actual Cenvat credit attributable to exempted goods was sufficient compliance so as to avoid demand of 8% under Rule 6(3)(b) of the Cenvat Credit Rules, 2002.

Issue (i): Whether exemption under Notification No. 64/95-Central Excise, as amended, was available for goods supplied to Mazgaon Dock for use in construction of warships of the Indian Navy.

Analysis: The exemption entry required that the goods be supplied for use in construction of warships of the Indian Navy and that a certificate from the Indian Navy be produced before clearance. The text of the notification did not require direct supply to the Indian Navy. The goods were supplied to Mazgaon Dock for construction of Indian Navy warships and the requisite certificate was produced. The earlier precedent relied on by Revenue was distinguished because it dealt with a different exemption entry and a different factual setting.

Conclusion: The exemption was admissible and the demand of duty on this ground was not sustainable.

Issue (ii): Whether reversal of actual Cenvat credit attributable to exempted goods was sufficient compliance so as to avoid demand of 8% under Rule 6(3)(b) of the Cenvat Credit Rules, 2002.

Analysis: The respondent had reversed the actual Cenvat credit on inputs used in the exempted goods before clearance, which was treated as equivalent to non-availment of credit. The reasoning was reinforced by the retrospective amendment to Rule 6 and the cited authorities supporting reversal of actual credit as sufficient compliance.

Conclusion: The demand of 8% under Rule 6(3)(b) was not leviable.

Final Conclusion: The impugned order was upheld and the Revenue's appeal failed on both issues, leaving the assessee entitled to the exemption and relief from the Rule 6 demand.

Ratio Decidendi: Where the notification conditions are satisfied by supply of goods for use in construction of Indian Navy warships and the prescribed certificate is produced, direct supply to the Navy is not required; further, reversal of the actual Cenvat credit attributable to exempted goods constitutes sufficient compliance to negate the 8% payment demand.

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