CENVAT credit on exported goods under bond and duty-paid home clearances cannot be denied merely as exempted goods

CENVAT credit on inputs used in goods exported under bond was held admissible because such exports are not treated like exempted clearances for Rule 6 purposes. Credit relating to inputs consumed in exported goods therefore could not be denied on that ground. For goods cleared for home consumption, where duty had been paid and accepted on the final product, the corresponding input credit could not be reversed merely because the department asserted that the product was exempt. The order under challenge was set aside, with consequential relief to the assessee.

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Issues: (i) Whether CENVAT credit was inadmissible in respect of inputs used in the manufacture of goods exported under bond; and (ii) whether CENVAT credit availed on inputs used for goods cleared for home consumption could be denied merely because the department treated the final product as exempted.

Issue (i): Whether CENVAT credit was inadmissible in respect of inputs used in the manufacture of goods exported under bond.

Analysis: Goods exported under bond stand on a different footing for the purpose of Rule 6 of the CENVAT Credit Rules, 2004. Where the inputs are used in the manufacture of goods actually exported, the credit attributable to such exported clearances is not hit by the restriction against credit on exempted goods.

Conclusion: CENVAT credit was admissible for the quantity of inputs used in goods exported under bond.

Issue (ii): Whether CENVAT credit availed on inputs used for goods cleared for home consumption could be denied merely because the department treated the final product as exempted.

Analysis: The dispute on the nature of the product was persistently contested, and the assessee had paid duty on the home-consumed clearances. Once duty was accepted on the final product, the credit already availed on inputs used for those clearances was not liable to be reversed merely on the department's claim that the product was exempt. The prior acceptance of duty on the clearances and the absence of a conclusive contrary finding on the product's nature supported retention of credit.

Conclusion: CENVAT credit could not be denied or reversed on the home-consumed clearances in the facts of the case.

Final Conclusion: The impugned order was unsustainable and was set aside, resulting in relief to the assessee with consequential benefits in accordance with law.

Ratio Decidendi: Credit on inputs used for exported goods under bond is not barred by the rule against credit on exempted goods, and where duty on the final product has been accepted, CENVAT credit availed on the corresponding inputs cannot be reversed merely because the department asserts that the product ought to have been exempt.

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