Rule 57CC on common inputs: proportionate credit reversal accepted where separate accounts for exempted goods were not maintained.

Rule 57CC of the Central Excise Rules, 1944 permits an assessee using common inputs for dutiable and exempted goods either to maintain separate input accounts or to pay 8% of the exempted clearances. Where separate accounts are not maintained, the department may recover wrongly availed input credit attributable to exempted goods. On the facts noted, the assessee used common inputs, did not maintain separate accounts, and the amount paid during investigation was treated as a deposit; the Commissioner was justified in allowing proportionate credit reversal and dropping the demand under Rule 57CC.

---

---

Issues: Whether, where common inputs are used in the manufacture of dutiable and exempted goods and separate accounts are not maintained, the demand under Rule 57CC could be dropped by accepting reversal of proportionate input credit instead of insisting on payment of 8% of the value of exempted clearances.

Analysis: The decision turned on the scheme of Rule 57CC of the Central Excise Rules, 1944. The rule gave an option to the assessee either to maintain separate accounts for inputs used in exempted goods or to pay an amount calculated at 8% of the price of the exempted product. Where the assessee did not opt for that mechanism, the department was not precluded from recovering the input duty credit wrongly availed in relation to the exempted goods. On the facts, the assessee had used common inputs, had not maintained separate accounts, and the amount paid during investigation was treated as a deposit. The Commissioner was therefore justified in recognising the proportionate credit reversal relating to the exempted goods and in dropping the demand raised under Rule 57CC.

Conclusion: The Commissioner's order was upheld; the Department's appeal failed.

Ratio Decidendi: In cases involving common inputs used for both dutiable and exempted goods, failure to maintain separate accounts permits recovery of wrongly availed input credit, and the assessee cannot be compelled to pay the 8% amount under Rule 57CC unless that option is chosen under the rule.

---