Exemption for motor vehicles on duty-paid chassis upheld after Cenvat credit reversal, with penalty set aside.

Exemption under Notifications No. 6/2002-CE and 6/2006-CE was available for motor vehicles manufactured out of duty-paid chassis where no Cenvat credit on the chassis and inputs used in such manufacture had been taken. The record showed that the credit attributable to exempt clearances had been reversed with interest before the show cause notice, so the notification condition was treated as satisfied and denial of exemption was unsustainable. Penalty was therefore not warranted. The demand relating to Notification No. 8/2003-CE was upheld only to the extent already conceded.

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Issues: Whether the appellant was entitled to the benefit of Notification No. 6/2002-CE dated 01.03.2002 and Notification No. 6/2006-CE dated 01.03.2006 after reversing the Cenvat credit attributable to the goods cleared without payment of duty, and whether penalty was sustainable.

Analysis: The goods were held to fall within the exemption scheme governing motor vehicles manufactured out of duty-paid chassis, subject to the condition that no credit of duty paid on the chassis and inputs used in the manufacture of such vehicles had been taken. The material on record showed that the credit attributable to the exempt clearances had been reversed during investigation, along with interest, before issuance of the show cause notice. On that basis, the condition attached to the exemption notifications was treated as satisfied, and the denial of exemption was held to be unsustainable. Since the appellant succeeded on the principal exemption issue, and the disputed SSI benefit had already been conceded in part, penalty was held not to be warranted.

Conclusion: The appellant was held entitled to the benefit of Notification No. 6/2002-CE dated 01.03.2002 and Notification No. 6/2006-CE dated 01.03.2006. Penalty was set aside, while the demand relating to Notification No. 8/2003-CE dated 01.03.2003 was upheld for the conceded amount.

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