Chapter X clearances against CT-2 certificates are not exempt clearances, so Cenvat credit reversal was not required.

Clearance of goods under Chapter X against CT-2 certificates was treated as distinct from clearance of wholly exempt or nil-rate goods, so the rule requiring reversal of Cenvat credit on exempt clearances did not apply. On the facts found, Rule 6(3)(b) of the Cenvat Credit Rules, 2002 was therefore inapplicable to the disputed clearances, and the demand, penalty and consequential levy based on credit reversal were set aside in favour of the assessee. The extended period issue was raised, but the operative basis of relief was the inapplicability of the reversal provision to the clearance mechanism used.

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Issues: Whether goods cleared without payment of duty against CT-2 certificates under the exemption scheme were liable to reversal of 8% of the selling price under Rule 6(3)(b) of the Cenvat Credit Rules, 2002, and whether the extended period of limitation was invocable.

Analysis: The clearance was under Chapter X procedure against CT-2 certificates and the goods were not wholly exempt or chargeable to nil rate of duty. The legal position applied was that clearance under Chapter X or under bond is not the same as clearance of exempt goods or goods chargeable to nil rate of duty. On that basis, the condition for applying Rule 6(3)(b) was not attracted on the facts found.

Conclusion: Rule 6(3)(b) of the Cenvat Credit Rules, 2002 was not applicable to the clearances in question, and the appeal was allowed in favour of the assessee.

Final Conclusion: The demand, penalty and consequential levy founded on Rule 6 reversal were set aside, with relief following for the assessee.

Ratio Decidendi: Clearance of goods under Chapter X against CT-2 certificates is not equivalent to clearance of wholly exempt or nil-rate goods, and therefore the rule requiring reversal of Cenvat credit on exempt clearances does not apply.

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