Cenvat Credit Available on Inputs Irrespective of Goods Being Dutiable or Exempted: CESTAT [Read Order]

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal(CESTAT) ruled that CENVAT credit on inputs is available, regardless of whether the final goods are dutiable or exempt.

Adisankara Spinning Mills Pvt Ltd.,appellant-assessee,a manufacturer of 100% cotton yarn, cleared goods for export between 2009-10 and 2011-12 under notification No. 29/2004-CE and claimed a rebate. They also used the exemption under notification No. 30/2004-CE for both export and domestic clearances. The assessee took Cenvat credit on capital goods and input services but did not claim credit on inputs. They used common input services for both dutiable and exempted goods (exported).

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The Department disagreed with the assessee’s method of calculation. It argued that the appellant did not include the value of exported cotton yarn, which led to a lower ratio for Cenvat credit reversal. A show cause notice was issued to disallow Rs. 5,99,192/- along with interest and penalty. The original order was challenged, but the appeal was rejected.

The assessee appealed before the tribunal.

Read More: CENVAT Credit on Common Inputs/Input Services cannot be denied Even If Assessee is Rendering Exempted Services: CESTAT

A single member bench comprising Ajayan T.V (Judicial Member) after reviewing the appeal and case laws,referred to a previous ruling in Sivaraj Spinning Mills Pvt. Ltd. v. Commissioner of GST & Central Excise, Madurai (2024), where a similar issue was decided in favor of the assessee. In that case, the assessee cleared cotton yarn under two notifications—one at a concessional rate and the other at a nil rate—simultaneously. The ITAT held that CENVAT credit on input services was allowed, even when exempted goods were exported, citing Rule 6(6)(v) of the CENVAT Credit Rules, 2004.

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The appellate tribunal also relied on decisions in M/s. Drish Shoes Ltd., Jolly Board Ltd., and Lavino Kapur Cottons Pvt. Ltd., where it was held that the requirement to execute a bond while exporting exempted goods was merely procedural. The rulings clarified that credit on input services used in the manufacture of exported goods remained valid, even if the final product was otherwise exempt from duty.

Following the established precedents, the ITAT ruled in favor of the assessee.

To Read the full text of the Order CLICK HERE

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