Cenvat credit compliance for exempt and concessional clearances upheld where attributable credit was reversed before utilisation.

Cenvat credit on inputs used in textile clearances was allowable where the exemption and concessional notifications were read together and the assessee complied with the condition of non-availment of credit. The circulars accepted proportionate credit at month-end for concessional clearances, and reversal before utilisation for exempt clearances was treated as substantial compliance. Where the assessee reversed the attributable credit, supported the working with a Chartered Accountant certificate and return entries, denial of credit merely because the credit mechanism changed over time or because the certificate was rejected without valid reasons was unjustified. The credit claim was therefore upheld and the demand could not be sustained.

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Issues: Whether the appellant was entitled to Cenvat credit in respect of inputs used in manufacture of goods cleared under the two exemption/concession notifications, and whether credit could be denied merely because the methodology of availing and reversing credit changed over time despite reversal before utilisation and supporting Chartered Accountant certification.

Analysis: The dispute turned on simultaneous application of the two notifications governing clearance of textile goods, one granting concessional duty and the other full exemption subject to non-availment of input credit. The relevant circulars recognised that both notifications could operate together and later clarified that proportionate credit at the end of the month was acceptable where goods were cleared under the concessional notification, while reversal before utilisation in relation to exempt clearances amounted to substantial compliance with the condition of non-availment. The record also showed that the appellant had reversed the attributable credit and supported its working with a Chartered Accountant certificate and return entries. In these circumstances, denial of credit solely on the ground that credit was not taken immediately, or because the adjudicating authority rejected the certificate without valid reasons, was not justified.

Conclusion: The appellant was entitled to the credit claimed, and the demand could not be sustained.

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