CENVAT credit on packing material cannot defeat exemption for distinct exempt food products when the condition is otherwise satisfied.

CENVAT credit taken on inputs used to manufacture packing material could not be linked to exempted food products to deny Notification No. 1/2011-CE, because the two were distinct goods and no credit had been taken on inputs used in the exempted products themselves. The Tribunal followed its earlier view on identical facts and held that credit for one separate line of manufacture does not defeat exemption for another where the relevant credit condition is otherwise satisfied. The denial of exemption was therefore unsustainable, the impugned orders were set aside, and the appeals were allowed with consequential relief.

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Issues: Whether CENVAT credit availed in relation to the manufacture of packing material could be linked to the exempted food products so as to deny the benefit of Notification No. 1/2011-CE dated 01.03.2011.

Analysis: The appeals involved identical facts and the same issue had already been decided in the appellant's favour for an earlier period. The Tribunal followed that earlier view and held that the packing material and the food products were distinct categories of goods. Credit taken on inputs used for packing material could not be treated as credit taken for the manufacture of the exempted food products, especially when no CENVAT credit was availed for the inputs used in those exempted products. The exemption could not be denied merely because credit was taken for a separate line of manufacture.

Conclusion: The denial of exemption was unsustainable and the appellant was entitled to the benefit of Notification No. 1/2011-CE dated 01.03.2011.

Final Conclusion: The impugned orders were set aside and all the appeals were allowed, with consequential relief.

Ratio Decidendi: CENVAT credit taken for inputs used in the manufacture of one distinct product cannot be used to deny an exemption for another product where the credit condition for that exempted product is otherwise satisfied.

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