CENVAT credit reversal for common inputs used in exempt goods is sufficient; 8% demand on exempt clearances fails.

Where common inputs were used for both dutiable and exempted final products, proportionate reversal of CENVAT credit attributable to exempted clearances was treated as sufficient compliance. The Tribunal found that separate accounts had been maintained for inputs used exclusively in exempt goods, and that reversal had been made for the common inputs used across both categories. On that basis, the demand to pay 8% of the value of the exempted goods was held unsustainable, the issue being covered by the cited precedent and the retrospective amendment referred to in that precedent.

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Issues: Whether, where common inputs are used for both dutiable and exempted final products, proportionate reversal of CENVAT credit attributable to exempted clearances satisfies the legal requirement so as to avoid the demand of an amount equal to 8% of the value of the exempted goods.

Analysis: The appellant had maintained separate accounts for certain inputs used exclusively in exempted goods and had reversed proportionate credit in respect of common inputs used in both categories of production when exempted goods were cleared. The disputed demand proceeded on the footing that failure to maintain separate accounts for the common inputs necessarily attracted liability to pay 8% under the applicable CENVAT regime. The Tribunal held that undisputed reversal of proportionate credit attributable to inputs used in exempted goods is sufficient and that the demand for 8% of the value of exempted goods is unsustainable, the issue being covered by the cited precedent and the retrospective amendment referred to in that precedent.

Conclusion: Proportionate reversal of CENVAT credit on common inputs used in exempted goods was held sufficient, and the demand of 8% was rejected.

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