SSI exemption and Cenvat credit can coexist for duty-paid clearances outside the exemption, under the notification's limited embargo.

Notification No. 8/2003-C.E. was read to permit a small scale industrial unit to avail exemption for eligible clearances while taking Cenvat credit on inputs used for goods cleared on payment of duty, including branded goods outside the exemption. The embargo on credit was construed as confined to inputs used for goods cleared without duty under the SSI exemption, and a later proviso to clause (iii) of paragraph 2 was treated as clarificatory of that limited scope. The reasoning distinguished earlier authority on the basis of materially different notification language, confirming that credit may be available for duty-paid clearances consistent with the notification.

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Issues: Whether a small scale industrial unit availing exemption under Notification No. 8/2003-C.E. could simultaneously take Cenvat credit on inputs used in the manufacture of specified goods cleared on payment of duty, including goods bearing the brand name of another person.

Analysis: The exemption notification was construed strictly, but its condition prohibiting availment of Cenvat credit on inputs was read as applying to the specified goods cleared without duty under the exemption. The proviso later added to clause (iii) of paragraph 2 was treated as clarificatory, because it explained the intended scope of the embargo and confirmed that the restriction did not govern inputs used for branded goods which were ineligible for the exemption. The earlier decision relied upon by the department was distinguished on the basis that the notification then under consideration was materially different. The reasoning adopted was that, where some clearances are exempt and other clearances are duty-paid, Cenvat credit can be availed in relation to the duty-paid clearances in accordance with the notification.

Conclusion: The assessee was entitled to the benefit of the exemption notification together with Cenvat credit in the manner recognised by the notification, and the demand, interest, and penalty could not be sustained.

Ratio Decidendi: Under Notification No. 8/2003-C.E., the embargo on Cenvat credit is confined to inputs used for goods cleared without duty under the SSI exemption, and does not extend to duty-paid clearances of goods outside the exemption.

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