SFIS scrip debit treated as duty payment, not exemption, so Rule 6 Cenvat Credit restrictions did not apply.

Goods cleared against debit in SFIS scrip under Notification No. 34/2006-CE were not treated as exempted goods, because the duty otherwise payable was discharged through utilisation of the duty credit scrip. The Foreign Trade Policy permitted such debit as a mode of paying excise duty, and the Gujarat High Court's view on the same scheme recognised it as discharge of duty liability rather than exemption. On that basis, Rule 6 of the Cenvat Credit Rules, 2004 did not apply, and the demand under Rule 14 could not survive.

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Issues: Whether goods cleared under Notification No. 34/2006-CE against debit in SFIS scrip are to be treated as exempted goods so as to attract Rule 6 of the Cenvat Credit Rules, 2004.

Analysis: The clearance under the SFIS scheme was not a case of unconditional exemption, because the duty otherwise payable on the goods was discharged by debit in the recipient's SFIS scrip. The Foreign Trade Policy provisions governing SFIS permitted utilisation of duty credit scrip for payment of excise duty, and the Gujarat High Court had already held on the same scheme and notification that such debit amounts to discharge of duty liability and not exemption. In view of that legal position, the clearances could not be treated as exempted clearances for the purpose of Rule 6, and the demand under Rule 14 could not survive.

Conclusion: The goods were not exempted goods, Rule 6 of the Cenvat Credit Rules, 2004 was inapplicable, and the Revenue's appeal failed.

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