CENVAT credit reversal applies where sieving and repacking is not manufacture; percentage-based demand under Rule 6 is not payable.

Sieving and repacking of LBU 30 and LBU 60 under Chapter 25 was treated as not amounting to manufacture. On that basis, the goods were not regarded as exempted goods, and the clearances were treated as inputs cleared as such. The operative liability was confined to reversal of the CENVAT credit availed on those inputs, namely the 4% SAD credit, rather than payment of 5%/10% of the value under Rule 6(3) of the CENVAT Credit Rules, 2004.

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Issues: Whether sieving and repacking of LBU 30 and LBU 60 amounted to manufacture so as to treat the goods as exempted goods, and whether the assessee was liable to pay 5%/10% of the value of such clearances or only reverse the credit availed on the inputs cleared as such.

Analysis: The activity of sieving and repacking under Chapter 25 of the Central Excise Tariff Act does not amount to manufacture. The assessee was therefore not manufacturing exempted goods; it was manufacturing boric acid and had cleared the inputs LBU 30 and LBU 60 as such. In such circumstances, the liability was confined to reversal of the CENVAT credit availed on the inputs, namely the 4% SAD taken as credit, and not the amount demanded under Rule 6(3) of the CENVAT Credit Rules, 2004.

Conclusion: The assessee was liable only to reverse the 4% SAD credit on the inputs cleared as such, and not to pay 5%/10% of the value of the clearances.

Final Conclusion: The assessee succeeded on the substantive dispute and the Revenue's challenge failed.

Ratio Decidendi: Where an activity does not amount to manufacture, clearance of inputs as such does not attract the obligation to pay a percentage of the value of exempted goods under Rule 6, and the liability is confined to reversal of the credit availed on those inputs.

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