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Issues: (i) whether, where common inputs were used in the manufacture of exempted as well as dutiable goods, reversal of credit relatable to the exempted goods was sufficient compliance with Rule 6 of the CENVAT Credit Rules, 2002 instead of payment of 8% of the value of exempted goods; (ii) whether the demand of alleged excess refund could be sustained when the exercise was revenue neutral.
Issue (i): whether, where common inputs were used in the manufacture of exempted as well as dutiable goods, reversal of credit relatable to the exempted goods was sufficient compliance with Rule 6 of the CENVAT Credit Rules, 2002 instead of payment of 8% of the value of exempted goods.
Analysis: The credit attributable to inputs actually used in the manufacture of exempted final products had been reversed before clearance. Rule 6 of the CENVAT Credit Rules, 2002 permits compliance by ensuring that credit is not retained in relation to exempted goods, and the principle accepted in judicial precedent is that reversal of the relatable credit satisfies the requirement. There was no basis to insist that the assessee must necessarily discharge 8% of the value of the exempted goods when the actual credit attributable to those inputs had already been reversed.
Conclusion: The assessee's reversal of attributable credit was held to be sufficient compliance, and the insistence on payment of 8% of the value of exempted goods was rejected.
Issue (ii): whether the demand of alleged excess refund could be sustained when the exercise was revenue neutral.
Analysis: The alleged excess reversal only resulted in the assessee paying more duty through PLA, and that duty was later refunded under the notification regime. Even on the Revenue's own case, the amount would merely have remained in the CENVAT account and reduced the cash outflow into PLA. The transaction therefore caused no real revenue loss and the entire exercise was revenue neutral.
Conclusion: The demand of excess refund was not sustainable in the absence of any revenue implication.
Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief, the Revenue's demand being held unsustainable.
Ratio Decidendi: Where credit attributable to inputs used in exempted goods is reversed and the entire exercise is revenue neutral, a demand under Rule 6 cannot be sustained merely on the footing that 8% of the exempted value was not paid.
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