Tribunal rules reversal of credit post-clearance compensates for delay

The Tribunal set aside the demand for 10% of the net sale price of exempted goods and penalty imposed under Section 11AC. It was held that the reversal of credit by the appellants post-clearance of goods is akin to not taking any credit, compensating the Revenue for the delay by payment of interest. Citing relevant precedents, the Tribunal ruled in favor of the appellants, emphasizing that the reversal of credit suffices, rendering the demand for 10% of the net sale price of exempted goods unsustainable.

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Issues involved: Interpretation of Rule 6(3) of CENVAT Credit Rules, 2004 and Section 11AC of the Central Excise Act, 1944.

In the case, the appellants had cleared Ammonium Chloride of fertilizer grade without payment of duty and soda ash on payment of duty, while availing CENVAT credit on some input services without maintaining separate accounts for input services used in relation to the manufacture of either product. The Revenue demanded 10% of the net sale price of the exempted goods cleared and imposed penalty under Section 11AC. The Tribunal found that the reversal of credit by the appellants subsequent to the clearance of goods is equivalent to not taking any credit, and the Revenue is compensated for the delay in reversal by payment of interest. Therefore, the demand for 10% of the net sale price of exempted goods was set aside along with the penalty, allowing the appeal.

The Tribunal referred to the decision in Franco Italian Co. Pvt. Ltd. v. CCE and the recent decision in Mount Mettur Pharmaceuticals Ltd., along with the Hon'ble Gujarat High Court's decision in CCE v. Maize Products, to support their ruling that the reversal of credit by the appellants subsequent to the clearance of goods is sufficient, and the demand for 10% of the net sale price of exempted goods cannot be sustained.

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