Reversal of entire common-input credit ends Rule 57CC liability on exempted goods where separate accounts were not maintained.

Reversal of the entire MODVAT credit on common inputs used for both dutiable and exempted final products was treated as equivalent to non-availment of credit, so the consequence of not maintaining separate accounts under Rule 57CC ceased to apply. The Tribunal applied the earlier principle that an exemption linked to non-availment of credit is satisfied where the credit is fully reversed. On that basis, the liability to pay 8% of the sale price of exempted goods was held to be unsustainable where the entire credit had been reversed on the common inputs.

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Issues: Whether reversal of the entire credit taken on common inputs used in both dutiable and exempted products obviated the liability to pay 8% of the sale price of exempted goods under Rule 57CC of the Central Excise Rules, 1944.

Analysis: The assessee had used common inputs for dutiable and exempted final products without maintaining separate accounts. The Tribunal held that the consequence of not maintaining separate accounts under Rule 57CC ceases once the entire credit availed on such inputs is reversed. It further held that the principle recognised in the earlier decision on availment of exemption subject to non-availment of credit applies equally to the liability to pay a percentage of the sale price of exempted goods, and that reversal of the credit amounts to effective non-availment of MODVAT credit on those inputs.

Conclusion: Reversal of the entire credit on the common inputs removed the liability to pay 8% of the sale price under Rule 57CC, and the demand was unsustainable in favour of the assessee.

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