CENVAT credit cap for inputs from export-oriented units prevails over general credit rules, even through an intermediary transfer.

Rule 3(4) and Rule 3(5) of the CENVAT Credit Rules, 2002 allowed credit in the recipient's hands for the amount paid when inputs were cleared as such by an intermediary after reversal of the originally taken credit, so the credit chain remained valid to that extent. Rule 3(6)(a)(i), however, operated as a non obstante restriction on the otherwise available credit under Rule 3(1) where the inputs had been manufactured by a hundred per cent export-oriented undertaking. The recipient could not claim credit beyond the cap prescribed by that provision, even though the goods were received through an intermediary for further manufacture.

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Issues: (i) Whether removal of inputs as such after reversal of the credit originally taken by the intermediary supplier entitled the recipient to take credit of the amount paid on such removal under Rule 3(4) and Rule 3(5) of the CENVAT Credit Rules, 2002. (ii) Whether Rule 3(6)(a)(i) of the CENVAT Credit Rules, 2002 restricted the recipient's credit where the inputs had been manufactured by a hundred per cent export-oriented undertaking.

Issue (i): Whether removal of inputs as such after reversal of the credit originally taken by the intermediary supplier entitled the recipient to take credit of the amount paid on such removal under Rule 3(4) and Rule 3(5) of the CENVAT Credit Rules, 2002.

Analysis: The intermediary supplier had received the inputs on payment of duty, taken credit, and then cleared the same inputs without using them in manufacture. Rule 3(4) required payment of an amount equal to the credit availed on such removal, and Rule 3(5) treated that amount as eligible credit in the hands of the recipient. The credit chain was therefore valid for the amount reflected in the invoice issued on such clearance.

Conclusion: The issue was answered in the affirmative and in favour of the assessee.

Issue (ii): Whether Rule 3(6)(a)(i) of the CENVAT Credit Rules, 2002 restricted the recipient's credit where the inputs had been manufactured by a hundred per cent export-oriented undertaking.

Analysis: Rule 3(6) began with a non obstante clause and operated as a restriction on the credit otherwise available under Rule 3(1). The restriction was linked to the nature of the inputs and their manufacture by a hundred per cent export-oriented undertaking, and it applied even where the goods moved through an intermediary under Rule 3(4). The recipient, who used the inputs in further manufacture, could not take credit beyond the cap prescribed by the rule.

Conclusion: The issue was answered in the negative and in favour of the Revenue.

Final Conclusion: The recipient's credit was restricted by Rule 3(6)(a)(i), the Tribunal's order was unsustainable, and the appeal succeeded for the Revenue.

Ratio Decidendi: Rule 3(6)(a)(i) of the CENVAT Credit Rules, 2002 overrides the general credit-taking mechanism and caps credit on inputs manufactured by a hundred per cent export-oriented undertaking, even when the goods are received through an intermediary under Rule 3(4) and Rule 3(5).

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