2026-VIL-1315-CESTAT-HYD-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Cenvat Credit - Applicability of Rule 6 of Cenvat Credit Rules to goods cleared under Notification at concessional rate of duty – Appellant cleared Sulphuric Acid partly on payment of central excise duty and partly without payment of duty to fertilizer manufacturers under Notification No. 12/2012-CE and availed common Cenvat Credit of duty paid on inputs without maintaining separate accounts - Whether goods cleared under conditional duty-free removal under the notification constitute exempted goods within the meaning of Rule 2(d) of Cenvat Credit Rules, 2004 and attract Rule 6 requiring segregation or reversal of credit - HELD - Goods cleared under conditional exemption Notification cannot be treated as exempted goods as the exemption is not unconditional but depends upon fulfillment of elaborate statutory conditions prescribed under the relevant rules. The exemption is transaction-specific and purpose-oriented while the goods themselves remain intrinsically dutiable and are admittedly cleared on payment of duty to numerous other buyers. The statutory scheme prescribes elaborate safeguards including procurement certificates, verification, execution of bonds, maintenance of records, end-use verification and recovery mechanisms which demonstrate exemption is conditional with liability shifting to recipient manufacturer if conditions are violated. Goods cleared under such conditional duty-free removals cannot be mechanically equated with manufacture of inherently exempted goods. Hence Rule 6 of Cenvat Credit Rules has no application to such clearances and common Cenvat Credit attributable to inputs used in manufacture of such goods cannot be reversed – Further, the invocation of extended period of limitation is not sustainable as the conduct disclosed no deliberate attempt to evade duty and ingredients for extended period are conspicuously absent. The demands for Cenvat Credit reversal, interest and penalty cannot survive as the principal demand itself is not sustainable - In matters involving interpretation of rule and conditional exemptions, penalties cannot be imposed without fraud or willful misstatement or suppression of material facts. The impugned order is set aside and appeals are allowed
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