Reversal of input credit by 8% payment satisfies exempted goods condition; demand on duty-free bed clearance was unsustainable.

Payment of 8% of the value of exempted goods, where inputs are used in an intermediate product, was treated as equivalent to reversal of input credit and as compliance with the condition against availing credit. On that basis, exemption under Notification No. 67/95-CE was not denied merely because credit had allegedly been taken in breach of the condition. The same approach was consistent with the earlier Rule 57CC treatment of 8% payment as sufficient to satisfy non-availment of credit for exempted final products. Accordingly, the demand to pay 8% on the pressure sore prevention bed cleared without duty was unsustainable.

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Issues: Whether payment of 8% of the value of exempted goods in respect of inputs used for manufacture of the intermediate product amounted to compliance with the condition against availing credit, and consequently whether the demand to pay 8% on the pressure sore prevention bed cleared without duty was sustainable.

Analysis: The appellant had paid 8% of the value of the rubberised textile fabric used in the manufacture of the final product. Such payment was treated as equivalent to reversal of credit on inputs and, therefore, as compliance with the requirement that credit should not be taken on inputs used in exempted goods. The exemption under Notification No. 67/95-CE was thus not denied on the ground that credit had been availed in breach of the condition. The reasoning was consistent with the view earlier accepted under Rule 57CC of the Central Excise Rules, where payment at 8% was regarded as satisfying the requirement of non-availment of credit for exempted final products.

Conclusion: The appellant was not required to pay 8% of the value of the pressure sore prevention bed cleared by it, and the demand was unsustainable.

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