Exemption condition on non-availment of input credit can be cured by later reversal, keeping the exemption available.

An exemption notification requiring that no input credit be taken is treated as satisfied where the assessee later reverses the credit attributable to inputs in stock. The cited authorities view such reversal as curing the initial infraction, and the timing of reversal is not material by itself. On that basis, the denial of exemption was held unsustainable, and the demand and penalty were set aside because the assessee remained eligible for exemption under the notification despite the later reversal of credit.

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Issues: Whether subsequent reversal of Cenvat credit attributable to inputs in stock satisfies the condition in the exemption notification requiring non-availment of input credit, so as to entitle the assessee to exemption under Notification No. 30/2004-CE.

Analysis: The dispute turned on the condition in the exemption notification that no credit of duty on inputs or capital goods should be taken under the Cenvat Credit Rules, 2002. The assessee reversed the credit attributable to the inputs lying in stock and relied on precedent holding that later reversal of credit can cure the infraction for the purpose of availing the exemption. The cited authorities treated reversal of credit as sufficient compliance with the notification condition, and the timing of reversal was held not to be material.

Conclusion: The subsequent reversal of credit satisfied the exemption condition, and the denial of exemption was unsustainable.

Final Conclusion: The demand and penalty were set aside and the appeal was allowed because the assessee remained eligible for the exemption despite the later reversal of credit.

Ratio Decidendi: For an exemption notification conditioned on non-availment of input credit, later reversal of the credit attributable to those inputs is sufficient compliance, and the timing of such reversal does not by itself defeat the exemption.

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