Cenvat credit on inputs cleared to a 100% EOU cannot be reversed where the rules grant a specific exemption.

Cenvat credit taken on inputs did not require reversal when the inputs were cleared without duty to a 100% EOU, because Rule 6(6)(ii) of the Cenvat Credit Rules, 2004 expressly exempted such removals from the restriction in Rule 6(1). Rule 3(5), dealing with clearance of inputs as such, could not override that specific exemption, and the earlier Larger Bench view under the erstwhile Central Excise Rules was held inapplicable to the current regime. The demand was therefore unsustainable.

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Issues: Whether Cenvat credit availed on inputs is required to be reversed when the inputs are cleared to a 100% export oriented undertaking without payment of duty.

Analysis: The applicable framework under the Cenvat Credit Rules, 2004 distinguished between clearance of inputs as such and clearance of excisable goods to a 100% EOU. Rule 6(6)(ii) specifically exempted such removals to a 100% EOU from the restriction contained in Rule 6(1). The Tribunal also noted that Rule 3(5) dealt with reversal where inputs on which credit had been taken are cleared as such, but that provision could not be applied to negate the specific exemption available for removals to a 100% EOU. The earlier Larger Bench view based on the erstwhile Rule 57F of the Central Excise Rules, 1944 was held inapplicable to the present statutory regime.

Conclusion: Cenvat credit could not be denied or reversed for clearance of the inputs to a 100% EOU, and the demand was unsustainable.

Final Conclusion: The appeal was allowed and the impugned order was set aside, as the statutory exemption for removals to a 100% EOU protected the credit availed on the inputs.

Ratio Decidendi: Where the Cenvat Credit Rules expressly exempt removals to a 100% EOU from the restriction on credit, the credit taken on inputs cannot be reversed merely because the goods are cleared to such undertaking.

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