Exemption under Notification No. 14/2002 upheld where reversed Cenvat credit was treated as non-availment of credit.

An exemption under Notification No. 14/2002 was available where the substantive conditions were satisfied, including non-availment of Cenvat credit on inputs and capital goods and payment of duty on yarn. The record accepted the practical difficulty of paying duty at the spindle stage for grey fabrics cleared for both export and domestic use, and treated payment at the fabrics stage under the trade notice as consistent with the governing scheme. Reversal of Cenvat credit was treated as equivalent to non-availment of credit. On that basis, the exemption was upheld and the differential duty demand was held unsustainable.

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Issues: Whether the assessee was entitled to the benefit of Notification No. 14/2002 despite paying duty on yarn at the fabrics stage and reversing Cenvat credit instead of paying duty at the spindle stage.

Analysis: The exemption was conditioned on non-availment of credit on inputs and capital goods and payment of duty on the yarn. The record showed practical difficulty in paying duty at the spindle stage for grey fabrics meant both for export and domestic clearance. The Board's trade notice permitting payment at the fabrics stage continued to hold the field under the validating provisions in the Central Excise Rules, 2001 and 2002, and the reversal of credit was treated as equivalent to non-availment of credit. On that basis, the earlier appellate view allowing the exemption was found consistent with the governing scheme.

Conclusion: The assessee was entitled to the exemption, and the demand for differential duty was unsustainable.

Final Conclusion: The appeal by Revenue failed, and the order granting relief to the assessee stood affirmed.

Ratio Decidendi: Where the governing notification conditions are met in substance and the credit is reversed, such reversal is treated as non-availment of credit for the purpose of exemption, especially when the administrative trade notice validly permits payment at a later manufacturing stage.

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