Verification of credit reversal declarations requires notice, hearing and differential demand before rejection or sustained liability.

The statutory scheme for reversal of credit attributable to exempted goods required filing of a declaration, verification by the Commissioner, and a call for any differential amount if the reversal was short. A declaration could not be rejected straightaway without following that procedure or giving a reasonable opportunity of hearing, so the rejection was unsustainable. The demand under Rule 6(3)(b) could also not be finally upheld where the verification report showed a lower reversible amount and the sum already reversed had to be adjusted against the liability. The impugned demand and rejection were set aside and the matter was remanded for fresh adjudication.

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Issues: (i) Whether the declaration filed under Section 73 of the Finance Act, 2010 for reversal of credit attributable to exempted goods could be rejected straightaway without calling upon the assessee to pay the differential amount. (ii) Whether the demand confirmed under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 could be sustained in view of the verification report and the reversal already made.

Issue (i): Whether the declaration filed under Section 73 of the Finance Act, 2010 for reversal of credit attributable to exempted goods could be rejected straightaway without calling upon the assessee to pay the differential amount.

Analysis: The statutory scheme contemplated filing of a declaration with reversal of credit and interest for the past period, followed by verification by the Commissioner. If the amount paid was found to be short, the Commissioner was required to call upon the assessee to pay the differential amount within the prescribed time. Rejection of the declaration without such call and without affording an opportunity of hearing was contrary to that scheme.

Conclusion: The rejection of the declaration was unsustainable.

Issue (ii): Whether the demand confirmed under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 could be sustained in view of the verification report and the reversal already made.

Analysis: The verification report showed that the amount liable to be reversed was lower than the total credit claimed by the assessee, and the amount already reversed had to be adjusted against that liability. In these circumstances, the demand could not be finally upheld on the basis of the rejected declaration and required fresh adjudication after due hearing.

Conclusion: The impugned demand and the order rejecting the application were set aside and the matter was remanded for de novo adjudication.

Final Conclusion: The assessee obtained relief against the rejection and demand, but the controversy was sent back for fresh decision after giving a proper hearing.

Ratio Decidendi: Where a statute requires verification of a declaration for past-period reversal of credit and a call for differential payment, the authority cannot reject the declaration without following that statutory procedure and granting a reasonable opportunity of hearing.

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