Rule 6(3)(b) payment is not deductible from transaction value, but penalty fails absent suppression and concealment.

An amount payable under Rule 6(3)(b) of the Cenvat Credit Rules, 2002 is an adjustment for inadmissible credit and not excise duty or tax, so it cannot be deducted from transaction value for valuation purposes. The differential duty remained payable. On penalty, where the invoices themselves reflected the price reduction and there was no suppression or concealment from the department, a bona fide belief could exist and the penalty was not sustainable. The assessee therefore retained liability for the duty demand but obtained relief from penalty.

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Issues: (i) Whether the amount payable under Rule 6(3)(b) of the Cenvat Credit Rules, 2002 could be treated as excise duty or tax so as to be deducted from the transaction value. (ii) Whether penalty was sustainable when the assessee reduced the invoice price by the same amount and no suppression was established.

Issue (i): Whether the amount payable under Rule 6(3)(b) of the Cenvat Credit Rules, 2002 could be treated as excise duty or tax so as to be deducted from the transaction value.

Analysis: The payment under Rule 6(3)(b) was not in the nature of duty on exempted goods but was only an adjustment connected with inadmissible credit where separate records were not maintained. It was a statutory requirement for credit reversal and not a levy raised for the Government in the character of tax. The amount therefore could not be treated as deductible duty while arriving at the assessable value.

Conclusion: The deduction was not permissible and the demand of differential duty was upheld.

Issue (ii): Whether penalty was sustainable when the assessee reduced the invoice price by the same amount and no suppression was established.

Analysis: The invoices themselves reflected the price reduction, and there was no finding that the department was kept unaware of the practice. In these circumstances, the assessee could have entertained a bona fide belief regarding the permissibility of the deduction, and the element of suppression necessary for penalty was absent.

Conclusion: The penalty was set aside.

Final Conclusion: The assessee remained liable for the differential duty, but obtained relief from the penalty.

Ratio Decidendi: An amount payable under Rule 6(3)(b) of the Cenvat Credit Rules, 2002 is not excise duty or tax and cannot be deducted from transaction value, but penalty is not justified where the practice is disclosed and suppression is not established.

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