Cenvat credit reversal and exempted goods: Tribunal note says statutory payment scheme may not be replaced by pre-clearance reversal.

Rule 6 of the Cenvat Credit Rules, 2002 treats credit on inputs used in exempted final products as impermissible unless separate accounts are maintained, and where they are not, Rule 6(3) prescribes payment under clause (a) or, for other exempted goods, 8% of the sale price under clause (b). The note states that reversal of credit before clearance of exempted goods is not treated by the scheme as a substitute for the statutory payment, and that the Supreme Court ruling in Chandrapur Magnet Wires arose in a different statutory setting. Noting conflicting Tribunal views, the issue was referred to a Larger Bench for resolution.

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Issues: Whether Rule 6(3)(b) of the Cenvat Credit Rules, 2002 applies where the credit attributable to inputs used in exempted final products is reversed before clearance of the exempted goods, and whether the controversy should be referred to a Larger Bench.

Analysis: Rule 6(1) prohibits CENVAT credit on inputs used in exempted goods, while Rule 6(2) permits credit only for inputs used in dutiable goods if separate accounts are maintained. In the absence of separate accounts, Rule 6(3) requires payment of an amount under clause (a) for specified goods or, for other exempted goods, an amount equal to 8% of the sale price under clause (b). The order reasons that the scheme of Rule 6 does not contemplate reversal of credit as a substitute for the statutory payment, and that the Supreme Court decision in Chandrapur Magnet Wires arose in a different statutory context. It also notices contrary Tribunal views on the subject.

Conclusion: The controversy was not finally answered on merits and was referred to the Larger Bench for resolution.

Ratio Decidendi: Where the statutory scheme expressly prescribes the consequence for use of common inputs in exempted goods, and conflicting Tribunal views exist, the proper course is to refer the question to a Larger Bench rather than finally settle the applicability of reversal of credit as a substitute for the prescribed payment.

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