Exported goods under bond retain CENVAT credit despite being exempted or non-excisable under domestic law.

Goods cleared for export under bond or LUT were held not to lose CENVAT credit entitlement merely because they were treated as exempted, nil-rated, or non-excisable in the domestic market. Rule 6 of the CENVAT Credit Rules, 2004 was read in light of the export scheme, which is intended to avoid domestic tax burden on exports and prevent cascading of duty on inputs. The broader export exception in Rule 6(6) was treated as covering such clearances, so denial of credit or demand of an amount equivalent to 10% of the value of goods was unsustainable. The Revenue's challenge failed and the assessee retained the credit benefit.

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Issues: Whether CENVAT credit or an amount equivalent to 10% of the value of goods was payable in respect of goods exported under bond/LUT, including goods treated as non-excisable or exempted, and whether Rule 6 of the CENVAT Credit Rules, 2004 applied to deny such benefit.

Analysis: The dispute turned on the scope of Rule 6 in the context of goods cleared for export. The reasoning accepted that the scheme of the CENVAT Credit Rules is to prevent cascading of duty on inputs and that exports are not intended to bear domestic taxes. The distinction between "excisable goods" and "exempted goods" was held not to defeat credit where goods are exported under bond, and the broader expression in Rule 6(6) was treated as covering such exported clearances. The authorities relied upon consistently held that credit cannot be denied merely because the exported goods are exempted, nil-rated, or otherwise treated as non-excisable in the domestic market.

Conclusion: The demand was not sustainable and the Revenue's challenge to denial of credit failed.

Final Conclusion: The appeal was dismissed and the assessee retained the benefit of CENVAT credit in relation to the exported clearances.

Ratio Decidendi: Goods cleared for export under bond or LUT are not to be denied CENVAT credit treatment under Rule 6 merely because they are exempted, nil-rated, or otherwise non-dutiable in the domestic market; the export exception prevails.

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