Reversal of Cenvat credit with interest can neutralise Rule 6 liability, and binding precedent prevails over contrary circulars.

Reversal of Modvat/Cenvat credit attributable to common inputs used in exempted final products, when made with interest before adjudication is concluded, neutralises the credit for Rule 6 purposes and prevents a demand on that footing. The text also states that where higher judicial authorities have settled the law, adjudicating authorities must follow binding precedent and cannot prefer a contrary Board circular. On that basis, the demand was held unsustainable and the assessee received relief.

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Issues: Whether reversal of Modvat credit attributable to inputs used in exempted final products, along with interest, nullifies the credit so as to prevent demand under Rule 6 of the Cenvat Credit Rules, and whether contrary Board circulars can override binding judicial precedents.

Analysis: The appellant had reversed the credit taken on common inputs used in exempted goods, together with interest, before the adjudication was concluded. On that basis, the legal position was treated as if no credit had been availed in relation to the exempted products. The dispute had already been covered by precedent, and the Tribunal noted that the law was no longer res integra. The adjudicating authority had nonetheless preferred Board circulars over judicial decisions. It was held that where higher judicial authorities have laid down the law, judicial discipline requires adherence to those decisions rather than a contrary administrative circular.

Conclusion: Demand under Rule 6 was not sustainable after reversal of credit with interest, and the impugned order was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded and the assessee obtained consequential relief.

Ratio Decidendi: Reversal of credit attributable to exempted clearances, along with interest, has the effect of neutralising the credit for Rule 6 purposes, and adjudicating authorities must follow binding judicial precedent over contrary Board instructions.

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