The Gujarat High Court has held that reversal of Cenvat credit by a manufacturer before clearance of goods is equivalent to non-availment of credit, by satisfying the condition for exemption under Notification No. 30/2004-CE dated July 9, 2004.
A Division Bench of Justice Bhargav D. Karia and Justice Pranav Trivedi dismissed the Revenue’s appeal against a CESTAT order that had extended exemption to a textile manufacturer, reaffirming that the legal issue was already settled in earlier decisions of the High Court and the Supreme Court.
The dispute arose after central excise authorities alleged that a textile manufacturer wrongly claimed full excise exemption under Notification 30/2004-CE while also availing Cenvat credit on inputs such as dyes and chemicals. According to the Department, the manufacturer failed to maintain separate input records as required when simultaneously availing partial exemption under Notification 29/2004-CE.
The adjudicating authority confirmed duty demand and penalties, but the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad, set aside the order, holding that reversal of credit before claiming exemption amounted to compliance with the notification’s conditions.
The Bench noted that the legal question—whether reversal of Cenvat credit amounts to non-availment—had already been answered in Commissioner of Central Excise v. Ashima Dyecot Ltd. [2008 (232) E.L.T. 580 (Guj)], affirmed by the Supreme Court [2009 (240) E.L.T. A41 (SC)].
Referring to the Supreme Court’s landmark judgment in Chandrapur Magnet Wires (P) Ltd. v. Collector of Central Excise, Nagpur [1996 (81) E.L.T. 3 (SC)], the Court observed that when credit taken on inputs is reversed before clearance of exempted goods, it must be treated as if no credit was ever availed.
The High Court agreed with the Tribunal’s reliance on Omkar Textiles v. CCE & C, Ahmedabad, which had applied the same principle, and held that the Revenue’s interpretation contradicted settled law.
Dismissing the appeal, the Court ruled that the appeal is devoid of merit in view of the settled legal position. The question of law is answered in favour of the assessee and against the department.
Case Details
Case Title: Commissioner, Central Excise, Ahmedabad – I Versus Bhairavnath Industries (P) Ltd.
Case No.: R/TAX APPEAL NO. 413 of 2008
Date: 08/10/2025
Counsel For Petitioner: HETVI H SANCHETI
Counsel For Respondent: RULE SERVED
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