CENVAT credit allowed where inputs served both exempted and dutiable goods, and Rule 6(3)(b) applied without separate accounts.

CENVAT credit was upheld where inputs were used in both exempted and dutiable clearances and the manufacturer had not maintained separate accounts, because Rule 6(3)(b) permits payment of the prescribed percentage on exempted final products in such cases. Rule 6(1) did not bar credit on the factual finding that exclusivity of use in exempted goods was not established, and the clarification excluding inputs used exclusively for exempted goods was inapplicable. Reliance on an earlier Tribunal view was held unobjectionable, since a legal principle does not fail merely because that decision had not attained finality. The Revenue's challenge failed and the appeal was dismissed.

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Issues: (i) Whether CENVAT credit was admissible where inputs were used for both exempted and dutiable clearances and separate accounts were not maintained; (ii) Whether Rule 6(1) barred credit on the footing that certain inputs were used exclusively in exempted goods; (iii) Whether reliance on the earlier Tribunal decision was misplaced because that decision had not attained finality.

Issue (i): Whether CENVAT credit was admissible where inputs were used for both exempted and dutiable clearances and separate accounts were not maintained.

Analysis: The factual finding accepted by the Tribunal was that the disputed inputs were used in the manufacture of both exempted goods and goods cleared on payment of duty, and that no separate accounts were maintained. Rule 6(3)(b) of the CENVAT Credit Rules, 2004 operates notwithstanding Rules 6(1) and 6(2) and permits the manufacturer, who does not maintain separate accounts, to pay the prescribed percentage on the exempted final product. On those facts, the assessee satisfied the statutory conditions for availing credit.

Conclusion: The credit was admissible and the issue was decided in favour of the assessee.

Issue (ii): Whether Rule 6(1) barred credit on the footing that certain inputs were used exclusively in exempted goods.

Analysis: The departmental case that the relevant inputs were exclusively used for exempted clearances was rejected on the factual finding recorded by the Tribunal. Explanation III to Rule 6(3), which clarifies that credit is not allowed on inputs used exclusively for exempted goods, did not assist the Revenue because exclusivity was not established. Once the case fell within Rule 6(3)(b), Rule 6(1) had no application.

Conclusion: Rule 6(1) did not bar credit on the facts found, and the issue was decided in favour of the assessee.

Issue (iii): Whether reliance on the earlier Tribunal decision was misplaced because that decision had not attained finality.

Analysis: The challenge was held to be misconceived. A point of law does not fail merely because an earlier Tribunal decision had not yet attained finality, and in any event the earlier view stood upheld by the Supreme Court in an identical matter. The reliance on that line of authority was therefore unobjectionable.

Conclusion: The objection failed and the issue was decided against the Revenue.

Final Conclusion: The Revenue failed to establish wrongful availment of credit, the assessee's compliance with Rule 6(3)(b) was upheld, and the appeal was dismissed.

Ratio Decidendi: Where inputs are found on facts to have been used both for exempted and dutiable clearances and the manufacturer, without maintaining separate accounts, pays the amount prescribed under Rule 6(3)(b), CENVAT credit cannot be denied by invoking Rule 6(1) or the clarification that excludes only inputs used exclusively in exempted goods.

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