Conditional exemption and duty-paid inputs supported Cenvat credit; denial to the coal buyer was unsustainable.

Cenvat credit could not be denied to the buyer of coal merely because the supplier had paid duty despite a conditional exemption notification applying to goods manufactured in a mine. The notification granted relief only subject to specified conditions and was not an absolute exemption; therefore, duty actually paid on the inputs remained a valid basis for credit. The denial of credit on the assumption that the supplier was not required to pay duty was not justified, and the cited authorities supported availability of credit on duty actually paid. The disallowance was accordingly set aside.

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Issues: Whether Cenvat credit could be denied to the buyer of coal when duty had been paid by the supplier although the exemption notification granted relief subject to the condition that the goods were manufactured in a mine.

Analysis: The exemption notification did not grant an absolute exemption from excise duty. It exempted the goods only subject to the stated condition. Since the notification was conditional, the payment made by the supplier could not be treated as an unwarranted basis to deny credit to the buyer. The denial of credit on the footing that the supplier was not required to pay duty was therefore not justified. The cited decisions also supported the proposition that Cenvat credit is available on duty actually paid.

Conclusion: The denial of Cenvat credit was not sustainable and the assessee succeeded on the issue.

Final Conclusion: The impugned order was set aside and the credit disallowance was removed.

Ratio Decidendi: Where an exemption notification grants relief only subject to conditions, duty actually paid on inputs cannot be denied as Cenvat credit merely because the supplier was not obliged to pay if the conditional exemption applied.

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