Cenvat credit on exported capital goods need not be reversed, and reduced drawback does not bar retention of credit.

Cenvat credit on capital goods exported as such need not be reversed where the goods were not consumed in the factory and were cleared for export, because export removals do not attract domestic duty incidence in the manner contemplated by Rule 3(5) of the Cenvat Credit Rules, 2004. A drawback claim under Section 74 of the Customs Act, 1962 did not disentitle the assessee from retaining the credit where the drawback had already been reduced to the extent of the credit availed. The exported capital goods therefore remained eligible for credit retention.

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Issues: Whether Cenvat credit availed on capital goods is required to be reversed when the capital goods are exported as such, and whether a drawback claim under Section 74 of the Customs Act, 1962 disqualifies the assessee from retaining such credit.

Analysis: The capital goods on which credit was taken were exported and not consumed in the factory. Exported goods are not meant to carry domestic duty incidence, and the settled position applied by the Tribunal is that capital goods cleared for export under bond or otherwise for export do not attract reversal of Cenvat credit merely because they were removed as such. The Tribunal also noted that the drawback claim had been reduced to the extent of the credit availed, so the drawback aspect could not be used to deny the credit. The reasoning was supported by earlier Tribunal decisions treating export of capital goods as outside the mischief of Rule 3(5) of the Cenvat Credit Rules, 2004.

Conclusion: Cenvat credit on the exported capital goods was not required to be reversed, and the drawback claim did not disentitle the assessee from the credit.

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