Common input credit reversal defeats Rule 6 demand on exempted clearances where the full credit was reversed.

Where common input credit on Hexane used for both dutiable and exempted products was fully reversed, the basis for invoking the alternative liability under Rule 6 of the Cenvat Credit Rules, 2002 did not survive. The demand to pay 8% of the value of exempted clearances was therefore not sustainable and was set aside. The record showed complete reversal of the credit attributable to the common input, which removed the statutory foundation for further payment on exempted products.

---

---

Issues: Whether, where common input credit taken on Hexane used for both dutiable and exempted products was fully reversed, the demand of 8% of the price of the exempted products under Rule 6 of the Cenvat Credit Rules, 2002 could still be sustained.

Analysis: Hexane was used as a common input in the manufacture of both dutiable refined rice bran oil and exempted by-products. Under Rule 6 of the Cenvat Credit Rules, 2002, the assessee had the option either not to avail credit attributable to exempted products or to pay 8% of the value of the exempted clearances. The record showed that the entire credit taken on Hexane was reversed. Once the full credit attributable to the common input was reversed, the basis for demanding 8% of the price of the exempted products did not survive.

Conclusion: The demand under Rule 6 was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded and the impugned order was annulled because complete reversal of the common input credit removed the liability to pay 8% on exempted clearances.

Ratio Decidendi: Where credit taken on a common input used in both dutiable and exempted products is fully reversed, the alternative liability to pay a percentage of the value of exempted goods under Rule 6 does not arise.

---