By-product not subject to Rule 6 reversal, and Cenvat credit survives where invoices and transport records prove receipt of goods.

Rule 6 of the Cenvat Credit Rules applies only where dutiable and exempted final products are manufactured; it does not extend to a by-product. As acid oil was treated as a by-product rather than an exempted final product, reversal of 10% of its value was held unsustainable. Cenvat credit was also upheld because the movement of goods was established through invoices, vehicle details, and matching quantity and description, despite an intervening unregistered dealer. The assessee succeeded on both issues and the Revenue's challenge failed.

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Issues: (i) Whether reversal of 10% of the value of the exempted product was required where the disputed goods were a by-product and not a final exempted product; (ii) whether Cenvat credit was admissible when the inputs were traced through invoices issued by an unregistered dealer.

Issue (i): Whether reversal of 10% of the value of the exempted product was required where the disputed goods were a by-product and not a final exempted product.

Analysis: Rule 6 of the Cenvat Credit Rules applies where both dutiable and exempted final products are manufactured. The disputed acid oil was treated by the Department itself as a by-product. On that footing, it was not an exempted final product, and the reversal mechanism under Rule 6 did not apply.

Conclusion: The demand based on reversal of 10% of the value was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether Cenvat credit was admissible when the inputs were traced through invoices issued by an unregistered dealer.

Analysis: The chain of movement of goods was established through the invoices and vehicle number, and the quantity and description of goods tallied. On that evidentiary basis, the credit was found to be supported notwithstanding the intervening unregistered dealer.

Conclusion: The credit was admissible and the Revenue's challenge failed.

Final Conclusion: The assessee succeeded on both disputed issues, while the Revenue's appeal was rejected.

Ratio Decidendi: Rule 6 of the Cenvat Credit Rules applies only to exempted final products and not to a by-product; Cenvat credit cannot be denied where the documentary chain establishes receipt of goods despite the involvement of an unregistered intermediary.

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