Reversal of attributable Cenvat credit removes the 8% liability on exempted clearances under Rule 6(3)(b).

Where common inputs are used in both dutiable and exempted goods, reversal of the credit attributable to exempted clearances before removal of the exempted goods means the further requirement to pay 8% of the value of exempted goods under Rule 6(3)(b) of the Cenvat Credit Rules, 2002 does not survive. The Tribunal relied on the Larger Bench view that once attributable credit is reversed, the statutory 8% liability is not attracted. It also noted that the Gujarat High Court had approved reversal based on attributable input credit, reinforcing that the demand under Rule 6(3)(b) is not sustainable in such circumstances.

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Issues: Whether, when common inputs are used in both dutiable and exempted goods and the credit relatable to exempted goods has been reversed, the assessee is still liable to pay 8% of the value of exempted clearances under Rule 6(3)(b) of the Cenvat Credit Rules, 2002.

Analysis: The appeals arose from a demand raised on the footing that separate inventory of common inputs had not been maintained and, therefore, 8% of the value of exempted goods was payable. The record showed that the credit attributable to inputs used in exempted goods had in fact been reversed and there was no dispute as to the fact or quantum of such reversal. The Tribunal applied the Larger Bench view that, where the attributable credit is reversed before removal of the exempted goods, the statutory requirement to pay 8% does not survive. The Tribunal also noted that the Gujarat High Court had approved reversal of credit on the basis of attributable input credit, supporting the assessee's stand.

Conclusion: The demand under Rule 6(3)(b) was not sustainable and the issue was decided in favour of the assessee.

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