Cenvat credit utilisation for Rule 6(3)(b) payments is not barred by Rule 8(3A) default restrictions.

Rule 8(3A) of the Central Excise Rules, 2002 does not bar utilisation of Cenvat credit for payment of amounts due under Rule 6(3)(b) of the Cenvat Credit Rules, 2004, because that amount is linked to exempted clearances and is designed to neutralise common input credit, not to discharge excise duty on final products. The provision also contemplates payment through debit of the Cenvat credit account, so the Rule 8 default restriction does not apply. The same reasoning applies to debit of credit on inputs removed as such. On that basis, denial of the debit was revenue neutral and consequential relief followed.

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Issues: Whether the restriction in Rule 8(3A) of the Central Excise Rules, 2002 barred utilisation of Cenvat credit for payment of the amount payable under Rule 6(3)(b) of the Cenvat Credit Rules, 2004, and for debit of credit relating to inputs cleared as such.

Analysis: The amount payable under Rule 6(3)(b) is linked to exempted clearances and is intended to neutralise credit taken on common inputs used in exempted final products. The provision itself contemplates payment by debiting the Cenvat credit account, or otherwise, and therefore stands on a different footing from payment of excise duty on final products under Rule 8. The restriction in Rule 8(3A), which operates during default in duty payment, was held not to extend to such Rule 6(3)(b) amounts. In addition, where the amount had already been debited from the credit account, denial of such debit would be revenue neutral because re-credit would become available for future duty payment. The same reasoning applied to removal of inputs as such, where credit equal to the availed amount had been reversed.

Conclusion: The demand was unsustainable, and the assessee was entitled to use Cenvat credit for the disputed payments and to consequential relief.

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