Cenvat credit on capital goods allowed where concessional duty notification could be opted over full exemption notification.

Notification No. 29/2004-CE provided an unconditional concessional duty rate of 4% and did not make availment of input credit a condition for its benefit, while Notification No. 30/2004-CE granted full exemption subject to non-availment of input credit. Where both notifications were available, the assessee could choose the more beneficial notification. Because the final product was not cleared exclusively as fully exempted goods, the capital goods could not be treated as used only in the manufacture of exempted goods, and Cenvat credit on capital goods was admissible.

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Issues: Whether Cenvat credit on capital goods could be denied when the assessee cleared some yarn at a concessional duty rate under Notification No. 29/2004-CE and other clearances at nil rate under Notification No. 30/2004-CE.

Analysis: Notification No. 29/2004-CE prescribed an unconditional concessional duty rate of 4% and did not require availment of input credit as a condition for its benefit. Notification No. 30/2004-CE granted full exemption subject to non-availment of input credit. Where both notifications were available, the assessee could opt for the more beneficial notification. Since the final product was not manufactured and cleared exclusively as fully exempted goods, the capital goods could not be treated as having been used only in the manufacture of exempted goods.

Conclusion: Cenvat credit on capital goods was admissible and its denial was unsustainable.

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