Proportional Cenvat credit reversal bars extra 8% Rule 6 demand and penalty on exempted clearances.

Where Cenvat credit attributable to inputs used in exempted clearances is reversed proportionately, Rule 6 does not require any further reversal of 8% of the sale value of the exempted goods. The Tribunal followed the Larger Bench view that such proportional reversal sufficiently protects the revenue, even where some clearances were made without duty under CT3 certificates. On that basis, the additional demand for 8% reversal was held unsustainable, and penalty under Rule 13 was also found unjustified because the credit reversal had already met the revenue's interest.

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Issues: Whether, where the credit attributable to inputs used in exempted clearances is reversed proportionately, Rule 6 of the Cenvat Credit Rules requires further payment of 8% of the sale value of the exempted goods and whether penalty under Rule 13 can be sustained.

Analysis: The Commissioner (Appeals) had held that proportional reversal of credit adequately protected the revenue and that the assessee could not be fastened with an additional 8% liability merely because some clearances were made without duty under CT3 certificates. The Tribunal accepted this view and noted that the issue had already been settled by the Larger Bench, which held that once credit attributable to the exempted product is reversed, there is no requirement to reverse 8% of the sale value of the exempted goods. The Tribunal also found no basis for imposing penalty when the credit reversal met the revenue's interest.

Conclusion: The demand for 8% reversal was not sustainable and the penalty under Rule 13 was not justified; the assessee succeeded on the issue.

Ratio Decidendi: When Cenvat credit attributable to inputs used in exempted goods is reversed, Rule 6 does not additionally require reversal of 8% of the exempted goods' sale value, and penalty cannot be sustained on that basis.

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