Proportionate reversal of credit satisfies Rule 57CC compliance for exempted clearances; fixed-percentage demand is not sustainable.

Where a manufacturer clears dutiable goods and also undertakes job-work clearances under Notification No. 214/86-CE, proportionate reversal of CENVAT credit attributable to inputs used in the exempted or nil-rated clearances is sufficient compliance. The dispute concerned whether Rule 57CC required payment of 8% of the price of such goods merely because separate records of common inputs were not maintained. The commentary notes that, in light of the retrospective amendment by the Finance Act, 2010, a fixed-percentage demand is not sustainable where the relevant credit has been proportionately reversed. On that basis, the assessee was held not liable to pay 8% under Rule 57CC.

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Issues: Whether the assessee was liable to pay 8% of the price of the goods cleared under Notification No. 214/86-CE for not maintaining separate records of common inputs, or whether proportionate reversal of credit was sufficient compliance.

Analysis: The assessee was manufacturing dutiable goods as well as undertaking job work cleared under Notification No. 214/86-CE, and was reversing the credit attributable to inputs used in the job-work goods. The dispute turned on whether Rule 57CC of the Central Excise Rules required payment of 8% of the price of exempted goods merely because separate records were not maintained. The decision noted that Rule 57 was retrospectively amended by the Finance Act, 2010 to recognise that proportionate reversal of credit in respect of inputs used in goods cleared at nil rate of duty is sufficient.

Conclusion: The assessee was not liable to pay 8% under Rule 57CC, and proportionate reversal of credit was sufficient. The appeals were rejected.

Ratio Decidendi: Where credit attributable to inputs used in exempted or nil-rated clearances is proportionately reversed, demand of a fixed percentage under Rule 57CC is not sustainable merely for want of separate records.

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