Cenvat credit on inputs for exempted goods not deniable where prescribed 8% payment was made by mixed manufacturers.

Cenvat credit on inputs used exclusively in exempted final products could not be denied where a manufacturer producing both dutiable and exempted goods had paid the prescribed 8% amount under the applicable rule. The Tribunal treated the payment obligation as attaching to the class of manufacturer rather than to a separate category of inputs, and followed its earlier orders in the assessee's own case. On that basis, the bar on credit was regarded as satisfied for all inputs used in the exempted final products, so the denial of credit was unsustainable. The demand, penalty and interest founded on that denial were therefore set aside.

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Issues: Whether Cenvat credit taken on inputs used exclusively in the manufacture of exempted final products was liable to be denied and recovered, notwithstanding payment of the prescribed 8% amount in respect of a manufacturer producing both dutiable and exempted goods.

Analysis: The Tribunal followed its earlier orders in the assessee's own case and reiterated that the relevant scheme treated the obligation as one attached to the class of manufacturer, not to any segregated category of inputs. Once the prescribed amount under the applicable rule was paid by a manufacturer producing both dutiable and exempted final products, the requirement corresponding to the bar on credit was treated as satisfied for the entirety of inputs used in the exempted final products. On that footing, the credit availed could not be denied merely because some inputs were used exclusively in exempted products, and the demand, penalty and interest founded on such denial could not survive.

Conclusion: The issue was decided in favour of the assessee, and the demand, penalty and interest were set aside.

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