Reversal of proportionate CENVAT credit can eliminate the separate 8% payment obligation on exempt clearances.

Reversal of proportionate CENVAT credit attributable to inputs used in exempted goods removes the further liability to pay 8% of the value of exempted clearances under the scheme. The Tribunal noted that, where common inputs are used for dutiable and exempt products, once the credit relatable to exempted goods is reversed and separate accounts are maintained, the additional percentage-based demand does not survive. It also treated the retrospective amendment to the relevant rules as confirming that reversal of credit extinguishes the obligation to pay the prescribed amount on exempt clearances.

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Issues: Whether, after reversal of the proportionate credit attributable to inputs used in exempted goods, the assessee was still liable to pay 8% of the value of the exempted clearances under the relevant CENVAT scheme provisions, and whether the retrospective amendment to those provisions removed such liability.

Analysis: The assessee had reversed the credit relatable to inputs used in the manufacture of the exempted intermediate product and thereafter maintained separate accounts for inputs used in the exempted final product. The Tribunal relied on the view that where common inputs are used for dutiable and exempted products and the proportionate credit attributable to exempted goods is reversed, demand of 8% of the value of exempted clearances is not sustainable. It further noted that the retrospective amendment to the relevant rules confirmed that once the CENVAT credit taken is reversed, the liability to pay 8% of the price of exempted goods does not survive.

Conclusion: The demand of 8% of the value of exempted clearances was not payable after reversal of the proportionate credit, and the Revenue's appeal failed.

Ratio Decidendi: Reversal of proportionate CENVAT credit attributable to exempted goods, especially in light of a retrospective validating amendment, extinguishes any further obligation to pay the prescribed percentage of the value of exempted clearances.

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