Reversal of input credit with interest satisfies Rule 6 compliance for exempted goods, defeating the 8% payment demand.

Where exempted goods were cleared without separate input accounts, reversal of input credit with interest at the time of removal was treated as sufficient compliance with Rule 6 of the Cenvat Credit Rules, 2002. Applying the principle recognised in Chandrapur Magnets and the relevant notification, the Tribunal held that such reversal met the rule's requirement, and the Karnataka HC found no error of law or irregularity in that view. The court also noted that the relevant amendment period extended to the date of removal in question. The assessee was therefore not liable to pay 8% of the price of the exempted goods, and the Revenue's challenge failed.

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Issues: Whether the assessee, having reversed the input credit with interest at the time of clearance of exempted goods, was still liable to pay 8% of the price under Rule 6 of the Cenvat Credit Rules, 2002.

Analysis: The assessee cleared the goods as exempted goods and had not maintained separate accounts of inputs. The Tribunal found that the assessee had reversed the credit taken on inputs along with interest at the time of removal and, relying on the applicable notification and the principle recognised in Chandrapur Magnets, held that such reversal met the requirement of the rule. The High Court found no error of law or irregularity in that approach and also noted that the relevant amendment period extended to the date of removal in question.

Conclusion: The assessee was not liable to pay 8% of the price of the exempted goods and the Revenue's challenge failed.

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