Reversal of proportionate Cenvat credit defeats 8% Rule 6 demand on exempt clearances.

Reversal of the proportionate Cenvat credit attributable to goods later cleared as exempted supplies to defence establishments was treated as equivalent to not having availed the credit at all, so the condition for demanding 8% of the sale value under Rule 6 was not met. Since the appellant had already reversed the credit relatable to the exempt clearances, the percentage-based demand could not be sustained. The issue was therefore resolved in favour of the assessee.

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Issues: Whether reversal of the proportionate Cenvat credit attributable to goods later cleared as exempted goods to defence establishments removes the liability to pay 8% of the sale value under Rule 6.

Analysis: The appellant had already reversed the credit relatable to the goods ultimately cleared without duty by the warehouse buyer. The reversed amount was far below the demand raised as 8% of the sale value. Applying the principle that reversal of credit is equivalent to not having taken the credit at all, the condition for demanding the prescribed percentage on exempted clearances was not satisfied.

Conclusion: The demand for 8% of the sale value was not sustainable and the issue was decided in favour of the assessee.

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