Cenvat credit reversal with interest can preserve exemption benefit where the notification requires no credit to have been taken.

Notification No. 45/2003-C.E. denied exemption only where Cenvat credit on inputs used for ceramic tiles had been taken under the relevant credit rules. Where the assessee had taken credit but later reversed the entire amount with interest and stated that no re-credit would be claimed, the reversal was treated as if no credit had been taken. On that basis, the notification condition was not regarded as breached, and denial of the benefit was unsustainable.

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Issues: Whether the benefit of Notification No. 45/2003-C.E. dated 14-5-2003 was deniable on the ground that credit had been taken on certain items, despite subsequent reversal of the entire credit with interest.

Analysis: The condition in the notification required that no credit of duty paid on the inputs used in or in relation to the manufacture of ceramic tiles should have been taken under Rule 3 or Rule 11 of the Cenvat Credit Rules, 2002. The credit taken by the assessee was subsequently reversed along with interest, and the assessee also stated that no re-credit would be claimed. In such circumstances, the reversal operated as if no credit had been taken, and the condition of the notification could not be treated as violated.

Conclusion: The denial of the notification benefit was unsustainable and the issue was decided in favour of the assessee.

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