Relief exemption for earthquake aid goods extends to intermediate products used in manufacture, while Cenvat reversal remained undisturbed.

An exemption notification for goods donated or purchased for earthquake relief was construed broadly to cover intermediate products such as engines, chassis and bodies used in manufacturing motor vehicles cleared for that humanitarian purpose. A narrow reading was rejected because it would defeat the object of the relief-oriented exemption, so the intermediate goods were held not liable to central excise duty and the demand was set aside. The assessee's 8% Cenvat credit reversal was not refunded or disturbed in these proceedings, as the record did not justify granting such relief and the adjustment issue did not survive after the duty demand failed.

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Issues: (i) whether intermediate products such as engines, chassis and bodies used in the manufacture of motor vehicles cleared for earthquake relief were exempt from central excise duty under the relevant exemption notification; (ii) whether the 8% reversal already made in the cenvat credit account was liable to be refunded or disturbed.

Issue (i): whether intermediate products such as engines, chassis and bodies used in the manufacture of motor vehicles cleared for earthquake relief were exempt from central excise duty under the relevant exemption notification.

Analysis: The notification exempted all goods falling under the First and Second Schedules to the Central Excise Tariff Act that were donated or purchased out of cash donations for relief and rehabilitation of the earthquake-affected people in Gujarat. The exemption was held to be broad enough to cover not only the final goods cleared for relief but also the intermediate products used to make them, because a narrow construction would defeat the purpose of the notification. The reasoning was supported by the earlier view that exemption notifications must be construed reasonably and in a manner consistent with their object, and by the principle that relief-oriented exemptions should not be rendered ineffective by insisting on a separate levy at the intermediate stage.

Conclusion: The intermediate products were held to be exempt and not liable to central excise duty, and the demand was set aside.

Issue (ii): whether the 8% reversal already made in the cenvat credit account was liable to be refunded or disturbed.

Analysis: The reversal was made by the assessee in relation to exempt final products. Since the duty demand on the intermediate goods failed, the question whether the reversal should be adjusted against that demand did not survive. The record did not justify granting a refund of the amount reversed on the assessee's own account in these proceedings.

Conclusion: The claim for refund or disturbance of the 8% reversal was rejected and the reversal was upheld.

Final Conclusion: The assessee succeeded on the principal duty demand on intermediate goods, the revenue's challenge did not survive, and the credit reversal already made remained undisturbed.

Ratio Decidendi: Where an exemption notification grants relief to all goods cleared or purchased for a specified humanitarian purpose, the notification must be construed to extend to intermediate goods used in the manufacture of the donated final products if a contrary view would defeat the object of the exemption.

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