Conditional exemption on polyester texturised yarn barred CENVAT credit on POY and related waste, with demand and penalty sustained.

CENVAT credit was held inadmissible on POY used in polyester texturised yarn cleared under a concessional duty notification that was conditional on no credit being taken on the POY. The restriction also applied to POY embedded in waste, work-in-progress, and goods manufactured from such conditional clearances, because the credit bar attached to the exemption could not be bypassed through subsequent processing or clearance. Rule 9A of the CENVAT Credit Rules, 2002 did not override the condition in the notification. The demand, interest and penalty were therefore sustained.

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Issues: Whether CENVAT credit was admissible on POY contained in polyester texturised yarn and in waste/wip derived therefrom when the finished texturised yarn had been cleared up to 31.03.2003 at a concessional rate of duty subject to the condition that no credit on POY was taken, in the light of Notification No. 6/2002-CE and Rule 9A of the CENVAT Credit Rules, 2002.

Analysis: The concessional duty benefit on polyester texturised yarn was available only on the condition that credit of duty paid on POY used in its manufacture was not availed. Once the goods were cleared under that conditional exemption, credit could not again be claimed on the POY embedded in such clearances or in products subsequently manufactured from them. The same restriction applied to POY allegedly contained in waste generated during the manufacture process. Rule 9A of the CENVAT Credit Rules, 2002 did not create any contrary entitlement overriding the condition attached to the concession.

Conclusion: CENVAT credit on the disputed POY was not admissible and the demand, interest and penalty were sustained.

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