Exempted goods under nil-duty notification defeat Rule 6(3)(b) demand where the products are specifically covered by exemption.

Where disputed bulk drugs and formulations were specifically covered by Notification No. 6/2003-CE prescribing nil duty, a demand under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 could not be sustained merely by reference to earlier decisions arising in different factual and legal settings. The Telangana HC held that the Tribunal correctly distinguished Texmo Industries and Ballarpur Industries because those authorities did not govern goods expressly exempted by notification. On that basis, the 10% liability under Rule 6(3)(b) was not attracted and the order in favour of the assessee was upheld.

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Issues: Whether the assessee was liable to pay 10% of the value of the exempted final products under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 despite the goods being covered by Notification No.6/2003-CE dated 01.03.2003.

Analysis: The disputed bulk drugs and formulations were found to fall within the exempted category under Notification No.6/2003-CE, dated 01.03.2003, which prescribed nil rate of duty for the specified goods. The Court held that the Tribunal's reliance on the earlier decision in Texmo Industries and the decision in Ballarpur Industries did not assist the Department because those matters arose in a different factual and legal context, whereas here the goods in question were specifically exempted by notification. On that basis, the Court found no error in the Tribunal's conclusion that the demand raised under Rule 6(3)(b) could not be sustained on the facts of the case.

Conclusion: The liability to pay 10% under Rule 6(3)(b) was not attracted, and the Tribunal's order in favour of the assessee was upheld.

Ratio Decidendi: Where goods are specifically covered by an exemption notification prescribing nil rate of duty, a demand under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 cannot be sustained merely on a broad comparison with other fact situations.

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