Conditional duty-free clearances are not exempted goods, so Rule 6 CENVAT reversal requirements do not apply.

Goods cleared without payment of duty under a conditional Chapter X concessional-clearance procedure are not exempted goods in the absolute sense, because the product remains dutiable and the duty concession depends on compliance with prescribed conditions. Rule 6 of the CENVAT Credit Rules, 2004 applies only where the final product is exempted from the whole of duty or chargeable to nil rate of duty, so the separate-accounting and credit reversal requirements do not extend to such conditional clearances. The demand for reversal of credit or payment of 10% of the value of clearances was therefore not sustainable.

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Issues: Whether sulphuric acid cleared without payment of duty under Chapter X procedure is to be treated as exempted goods for the purpose of Rule 6 of the CENVAT Credit Rules, 2004, and whether the demand for reversal of credit or payment of 10% of the value of such clearances was sustainable.

Analysis: The clearances were not of goods exempted from duty in the absolute sense. Sulphuric acid remained dutiable, and the benefit of non-payment of duty arose only on compliance with the prescribed Chapter X / concessional clearance procedure. The obligation to maintain separate accounts under Rule 6 applies where the final product is exempted from the whole of duty or chargeable to nil rate of duty. Goods cleared under a conditional procedure, where duty becomes payable if the conditions are not fulfilled, do not fall within that category. The issue was already settled by earlier decisions holding that such clearances are neither exempted goods nor goods chargeable to nil rate of duty.

Conclusion: Rule 6 of the CENVAT Credit Rules, 2004 was held inapplicable to the clearances in question, and the demand founded on that provision was set aside.

Ratio Decidendi: Goods cleared without payment of duty under a conditional concessional-clearance procedure are not exempted goods and do not attract the separate-accounting or reversal requirements meant for exempted or nil-rated final products.

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