CENVAT credit on a separate product line did not defeat exemption where the exempted goods met the non-availment condition.

CENVAT credit taken on inputs for a separate packing material division did not disqualify exemption under Notification No. 01/2011-CE where the exempted food products themselves had no credit availed on their inputs. The notification condition was satisfied for the goods on which exemption was claimed, and credit linked to another distinct product line could not be treated as denying the benefit. The exemption was therefore available, and the duty demand and penalty could not be sustained.

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Issues: Whether the assessee was entitled to exemption under Notification No. 01/2011-CE dated 01.03.2011 despite taking CENVAT credit on inputs used in manufacture of packing materials cleared on duty.

Analysis: The assessee manufactured two distinct categories of goods, namely packing materials and instant food products. CENVAT credit was taken only in relation to inputs used for the packing material division, while no credit was availed on inputs used for the exempted food products. The condition in the exemption notification required non-availment of credit in respect of the goods for which exemption was claimed. Credit taken for a separate product stream could not be linked to the exempted goods so as to deny the notification benefit. The cited principle that reversal or non-use of credit preserves exemption benefit supported this view.

Conclusion: The assessee was entitled to the exemption under Notification No. 01/2011-CE dated 01.03.2011, and the duty demand and penalty could not be sustained.

Final Conclusion: The appeal succeeded and the assessee obtained the exemption benefit along with consequential relief.

Ratio Decidendi: Credit availed in relation to a separate and distinct product line cannot be treated as disqualifying credit for another exempted product where the notification condition of non-availment is satisfied for the goods on which exemption is claimed.

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