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Issues: (i) whether reversal of CENVAT credit on inputs at the end of the month defeated the condition of non-availment of credit for exemption under Notification No. 14/2002-CE; (ii) whether fuel and lubricants were required to be reversed for the purposes of eligibility to the exemption.
Issue (i): Whether reversal of CENVAT credit on inputs at the end of the month defeated the condition of non-availment of credit for exemption under Notification No. 14/2002-CE.
Analysis: The applicable principle was that once credit was not retained for later utilisation, the condition of non-availment stood satisfied. The monthly lump-sum reversal was treated as a method of adjustment and not as continued retention of credit. The adverse finding was therefore unsustainable merely because the reversal was made at month-end.
Conclusion: This issue is answered in favour of the assessee.
Issue (ii): Whether fuel and lubricants were required to be reversed for the purposes of eligibility to the exemption.
Analysis: Fuel and lubricants were treated as consumables used in the manufacturing process, and the credit rules specifically excluded fuel from the proportionate reversal requirement applicable to common inputs used for exempted and dutiable goods. On that basis, credit taken on fuel and lubricants did not disqualify the assessee from the exemption.
Conclusion: This issue is answered in favour of the assessee.
Final Conclusion: The exemption could not be denied on the grounds of month-end reversal of credit or non-reversal of credit on fuel and lubricants, and the assessee remained eligible for the benefit claimed.
Ratio Decidendi: Where CENVAT credit is reversed before it is retained for future utilisation, the condition of non-availment is satisfied, and fuel used as a consumable in manufacture is not to be treated as credit requiring proportionate reversal where the applicable rules exclude it.
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