Input credit reversal not required where exempt goods were cleared on payment of duty despite common inputs being used.

Where goods otherwise covered by exemption were cleared on payment of duty, reversal of credit or payment of an amount equal to 8% of their value was not justified merely because common inputs were used. Rule 57CC could not support the demand in those circumstances, as the decisive fact was that duty had in fact been discharged on the clearances. The demand was therefore unsustainable.

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Issues: Whether reversal of an amount equal to 8% of the value of exempted goods cleared from common inputs was required when duty had in fact been paid on such clearances.

Analysis: The goods were covered by exemption under Section 5A(1) of the Central Excise Act, 1944, and the department sought reversal under Rule 57CC of the Central Excise Rules, 1944 on the footing that common inputs had been used. The deciding factor was that the goods had nevertheless been cleared on payment of duty. Applying the principle that where duty is discharged on clearance, reversal of credit on inputs is not warranted, the demand for 8% of the value of the exempted goods could not be sustained.

Conclusion: Reversal of 8% of the value of the goods was not required, and the impugned order setting aside the demand was in law.

Final Conclusion: The demand for reversal of 8% on the clearances was held unsustainable because the goods had been cleared on payment of duty, and the Revenue's challenge failed.

Ratio Decidendi: Where exempted goods are cleared on payment of duty, reversal of credit or amount demanded merely because common inputs were used is not justified.

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