Common input credit reversal under CENVAT rules sustained where separate accounts were not maintained and full reversal was unproven.

Common inputs used for both dutiable and exempted clearances required the assessee to maintain separate accounts or prove full reversal of the relatable CENVAT credit. The record did not show reliable maintenance of separate accounts for the common packing material, and the assessee also failed to establish that the entire credit attributable to those inputs had been reversed. In the absence of proof on either basis, the reversal claim could not succeed, and the demand under the CENVAT Credit Rules was sustained. The matter was also treated as falling within the extended period because it was detected through audit.

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Issues: Whether the appellant had maintained separate accounts of common inputs used in the manufacture of dutiable and exempted final products, and whether absence of such separate accounts warranted reversal of credit under Rule 6(3)(b) of the CENVAT Credit Rules, 2001 and 2002.

Analysis: The record showed no reliable material to establish that separate accounts were maintained for common packing material used in both dutiable and exempted clearances. The appellant also failed to demonstrate that the entire CENVAT credit relatable to such common inputs had been reversed. In the absence of proof of either complete reversal or proper separate maintenance of accounts, the claim based on reversal of credit could not succeed. Since the dispute was detected by audit, the demand was also treated as falling within the extended period.

Conclusion: The appellant failed on merits, and the demand based on non-maintenance of separate accounts and consequent reversal liability was upheld.

Final Conclusion: The appeal was dismissed on merits, with the substantive challenge to the credit reversal demand rejected.

Ratio Decidendi: Where common inputs are used for both dutiable and exempted goods, failure to maintain separate accounts or prove full reversal of relatable credit justifies denial of the assessee's claim and sustains the demand under the CENVAT credit scheme.

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