Cenvat credit reversal for exempted goods bars further 8% or 10% demand on exempt clearances.

Where Cenvat credit attributable to inputs used in exempted goods has already been reversed, no further payment of 8% or 10% of the value of exempted clearances is required. The article applies the principle that reversal of the relatable credit satisfies the compliance obligation, making an additional percentage-based demand unnecessary and disproportionate to the credit involved. On that basis, the demand was held unsustainable and the impugned order was set aside, with consequential relief.

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Issues: Whether payment of 8% or 10% of the value of exempted products was required where the credit attributable to inputs used in the manufacture of exempted goods had already been reversed.

Analysis: The dispute concerned Cenvat credit on inputs used for both dutiable and exempted products. The credit relatable to inputs used in exempted goods had already been reversed. In that situation, the reasoning adopted from the Larger Bench decision, as supported by the High Court view, was that insisting on payment of 8% or 10% of the value of exempted clearances was unnecessary and disproportionate to the credit involved.

Conclusion: The demand of 8% or 10% of the value of exempted products was not sustainable.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Where credit attributable to inputs used in exempted goods has already been reversed, no further payment of 8% or 10% of the value of the exempted clearances is required.

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