Retrospective excise credit reversal under Rule 57CC defeated the demand where common input credit was already reversed.

Rule 57CC of the Central Excise Rules, 1944 applied where a manufacturer cleared both dutiable and exempted goods without maintaining separate accounts, triggering payment linked to exempted products. The retrospective amendment under the Finance Act, 2010 introduced a mechanism allowing reversal of credit attributable to exempted goods for the relevant period, and prior reversal of common input credit was treated as sufficient to negate the demand. On that basis, the demand was held unsustainable and the assessee succeeded.

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Issues: Whether the demand under Rule 57CC of the Central Excise Rules, 1944 could be sustained when the assessee had reversed the common input credit before the retrospective amendment and the dispute fell within the amended regime.

Analysis: Rule 57CC applied where a manufacturer produced both dutiable and exempted goods and did not maintain separate accounts as required by sub-rule (9), in which event 8% of the price of exempted products was payable. The retrospective insertion under the Finance Act, 2010 introduced a mechanism for disputes relating to the relevant period, permitting reversal of the credit attributable to exempted goods. The record showed that the assessee had already reversed the common credit before the amendment, and the Tribunal had followed the principle that such reversal negatived the demand.

Conclusion: The demand was not sustainable and the issue was answered in favour of the assessee.

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