Late reversal of Cenvat credit after clearance defeats exemption where credit was available for use at removal.

Exemption under Notification No. 30/2004-C.E. depended on inputs used for exempted final products not carrying Cenvat credit at the time of clearance. Where credit remained available for use when the exempt goods were removed, it was treated as utilised even if the assessee did not actually set it off later. Rule 57CC of the Central Excise Rules, 1944 supported the requirement that credit be kept separate before removal of exempted goods. Because the credit was reversed only after the relevant clearances, the notification condition was not met and the exemption was denied.

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Issues: Whether the appellants were entitled to exemption under Notification No. 30/2004-C.E. when the Cenvat credit taken on inputs was reversed only after clearance of the exempted final products, and whether such late reversal prevented the credit from being treated as utilised.

Analysis: The exemption was conditional upon not taking credit on inputs used in the exempted goods. The governing principle, as applied in the earlier authorities relied upon, is that reversal of credit must take place before clearance of the exempted final product. Where credit is available for use against duty liability at the time of clearance, the credit is treated as utilised, even if the assessee does not actually draw upon it in the end. Rule 57CC of the Central Excise Rules, 1944 reinforced this position by requiring maintenance of separate treatment of credit before removal of exempted goods. On the admitted facts, the reversal occurred only after the relevant clearances, so the condition of the notification was not satisfied.

Conclusion: The late reversal amounted to utilisation of credit, and the appellants were not entitled to the exemption.

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