Partial customs duty exemption qualifies under Rule 6(6)(vii), excluding CENVAT credit reversal.

Luwa India cleared excisable goods without payment of central excise duty for expansion of an existing mega power project operated by Torrent Power Ltd.

The supplies were stated to be made under International Competitive Bidding and to qualify for customs exemptions under the applicable notifications, although imported goods attracted basic customs duty at 2.5%.

The Department alleged that Luwa had not maintained separate accounts for inputs and input services used in dutiable and exempted goods and sought payment of 5% or 6% of the value of the clearances under Rule 6 of the Cenvat Credit Rules, 2004.

The adjudicating authority confirmed the demand and penalty; the Commissioner (Appeals) rejected Luwa’s appeal, leading to the present appeal.

Whether goods supplied for expansion of an existing mega power project, which were eligible for partial exemption from customs duty when imported, were covered by Rule 6(6)(vii) of the Cenvat Credit Rules, 2004.

Whether Luwa was therefore required to comply with Rule 6(1)–(4), including maintaining separate accounts or paying the prescribed percentage of the value of the goods cleared without payment of duty.

Rule 6(1)–(4) of the Cenvat Credit Rules, 2004 generally requires a manufacturer using common inputs or input services for dutiable and exempted goods to maintain separate accounts or pay the prescribed amount; Rule 6(6)(vii), however, makes those provisions inapplicable to qualifying goods exempt from customs and additional customs duties when imported and supplied under the specified power-project or International Competitive Bidding arrangements.

Section 25(1) of the Customs Act, 1962 authorises exemption from the whole or any part of customs duty.

In Jacsons Thevara v. C.C. & C.E., 1992 (61) E.L.T. 343 (S.C.), the Supreme Court held that an exemption may include a partial exemption, rather than only a complete exemption.

The Tribunal accepted the certificates showing that the goods were supplied for the expansion of a mega power project and under International Competitive Bidding.

It rejected the Department’s position that the 2.5% basic customs duty payable on import meant the goods were not “exempt” for Rule 6(6)(vii).

Applying Jacsons Thevara, the Tribunal held that the customs exemption could be partial and still qualify under that rule; the goods’ partial exemption from basic customs duty and full exemption from additional customs duty therefore brought the supplies within Rule 6(6)(vii).

Consequently, Rule 6(1)–(4) did not apply to the impugned clearances.

It set aside the impugned appellate order and allowed Luwa’s appeal with consequential relief, if any, in accordance with law.