Cenvat credit reversal for inputs used in exempted goods where the final product was lost in statutory returns

Cenvat credit taken on inputs used to manufacture exempted final products is not admissible under Rule 6(1) of the Cenvat Credit Rules, 2002 unless the case falls within the limited exception in Rule 6(2). Where rectified spirit treated as an exempted final product was shown as lost in the statutory return, and the assessee neither reversed the credit attributable to the inputs nor paid duty, the credit had to be reversed. Authorities and case law concerning destruction of dutiable goods were inapplicable because the dispute concerned loss of exempted goods.

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Issues: Whether Cenvat credit taken on inputs used in the manufacture of exempted goods was required to be reversed when the exempted final product was shown as lost in the statutory return.

Analysis: The relevant credit was taken on molasses used for manufacture of rectified spirit, which was treated as exempted final product. The record showed persistent loss of rectified spirit during the relevant period, and the appellant had neither reversed the credit attributable to the inputs used in such exempted goods nor paid duty thereon. Rule 6(1) of the Cenvat Credit Rules, 2002 barred credit on inputs used in exempted goods, except in the limited circumstances covered by Rule 6(2). The appellant's case did not fall within those circumstances. The authorities and case-law relied upon by the appellant were found inapplicable because the present dispute concerned loss of exempted final product, not destruction of dutiable goods.

Conclusion: The credit on inputs used in the manufacture of the exempted final product was not admissible and was liable to be reversed; the appeal failed.

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