Retrospective Rule 6 amendment supports proportionate reversal of common Cenvat credit for exempted clearances in pre-deposit dispute.

Retrospective amendment to Rule 6 of the Cenvat Credit Rules was applied in a dispute involving exempted clearances from pig iron manufacture and common input credit. The Revenue had sought 5%/10% of the value of exempted goods for alleged non-maintenance of separate records, but the applicants argued that the only common credit related to GTA service tax and that proportionate credit attributable to the disputed clearances was limited. The amended rule was treated as requiring proportionate reversal of credit relatable to exempted goods, and the applicants were directed to deposit Rs. 8,00,000. On that deposit, waiver of the balance pre-deposit was granted and recovery was stayed pending the appeal.

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Issues: Whether, in the light of the retrospective amendment to Rule 6 of the Cenvat Credit Rules, the applicants were entitled to waiver of the balance pre-deposit in a dispute concerning exempted goods and common input credit.

Analysis: The applicants manufactured pig iron and, during screening of iron ore and metallurgical coke, iron ore fines and coke breeze emerged and were cleared without duty. The Revenue sought 5%/10% of the value of the exempted goods on the footing that common credit had been taken without maintaining separate records. The applicants contended that the main raw materials were non-dutiable and that the only common credit related to service tax on GTA services, with the credit attributable to the disputed clearances being about Rs. 8 lakhs. The amended rule was treated as requiring only proportionate reversal of credit relatable to exempted goods.

Conclusion: The applicants were directed to deposit Rs. 8,00,000 and, on such deposit, waiver of the remaining pre-deposit was granted with recovery stayed during the pendency of the appeal.

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