Exemption for captively consumed inputs and job-worked uppers barred duty demand where credit-rule conditions were satisfied.

Captively consumed soles used in manufacturing exempt footwear were covered by Notification No. 67/95-C.E., and compliance with the Cenvat Credit Rules meant no duty could be demanded on those inputs. Uppers received on job work were also treated as exempt under the Notification No. 214/86-C.E. framework, with the relevant credit-rule conditions and duty obligations found satisfied. On both components, the duty demand was unsustainable and liable to be set aside, leaving the assessee's challenge successful and the Revenue's challenge infructuous.

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Issues: (i) whether the captively consumed soles were entitled to exemption and no duty could be demanded; (ii) whether the uppers obtained on job work were exempt and the duty demand could survive.

Issue (i): whether the captively consumed soles were entitled to exemption and no duty could be demanded.

Analysis: The soles were manufactured in the appellant's factory and used captively in the manufacture of footwear. The exemption under Notification No. 67/95-C.E. was applicable to inputs used in the manufacture of exempted final products, and the appellant had discharged the obligation under Rule 6 of the Cenvat Credit Rules, 2001. On that basis, the captively consumed soles could not be subjected to duty.

Conclusion: The demand of duty on the soles was not sustainable and was liable to be set aside.

Issue (ii): whether the uppers obtained on job work were exempt and the duty demand could survive.

Analysis: The uppers were received through job work under Rule 4(5)(a) of the Cenvat Credit Rules, 2002. The record showed reliance on the exemption structure under Notification No. 214/86-C.E. and compliance with the conditions relating to use or removal of the goods and discharge of duty obligations under the relevant credit rules. The Tribunal found that these materials were not considered in the impugned order and that the uppers were exempt.

Conclusion: The demand in respect of the uppers was not sustainable and was liable to be set aside.

Final Conclusion: The duty demand was unsustainable on both components of manufacture, and the assessee's appeal succeeded, with the Revenue's appeal rendered infructuous.

Ratio Decidendi: Where exempt final products are manufactured and the statutory credit-rule obligations are discharged, captively consumed inputs and job-worked components covered by the applicable exemption notifications cannot be subjected to duty demand.

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