Duty-paid clearances preserve Cenvat credit where exemption was not availed, preventing denial of input and service tax credit.

Cenvat credit on inputs and input services could not be denied merely because an exemption notification was available but not availed, where the final medicaments were actually cleared on payment of duty. The exemption notifications were conditional, and the record showed duty-paid clearances during the relevant period, so the goods were treated as taxable clearances and the credit chain could not be disturbed on the assumption of exemption. The denial of credit was therefore unsustainable, the impugned order was set aside, and the appeals were allowed with consequential relief.

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Issues: Whether clearance of the medicaments on payment of duty, without availing the exemption notifications, disentitled the appellants from availing Cenvat credit on inputs and input services used in their manufacture.

Analysis: The exemption notifications governing the formulations were conditional and required satisfaction of the prescribed conditions before their benefit could be claimed. The record showed that the appellants cleared the goods on payment of duty during the relevant period. In such circumstances, the department could not sustain denial of Cenvat credit merely on the premise that the goods were exempted, because the duty-paid clearances were treated as taxable clearances and the credit chain could not be disturbed on that basis. The principle that credit cannot be denied when duty has been paid on the final product was applied.

Conclusion: The denial of Cenvat credit was unsustainable and the issue is answered in favour of the appellants.

Final Conclusion: The impugned order was set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Where final products are cleared on payment of duty, Cenvat credit on inputs and input services cannot be denied merely because an exemption notification could have been claimed but was not availed.

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