Retrospective Cenvat credit amendment makes 8% demand on exempted goods unsustainable after proportionate credit reversal.

A retrospective amendment to Rule 6 of the Cenvat Credit Rules, 2002, inserted by the Finance Act, 2010, covered disputes concerning credit reversal on inputs used in exempted final products for the relevant period. Where a manufacturer made both dutiable and exempted clearances and had reversed proportionate credit attributable to exempted goods, the demand of 8% of the sale value of exempted goods was not sustainable. The record showed compliance by way of proportionate reversal, so the impugned demand was set aside and the challenge to the order succeeded.

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Issues: Whether the demand of 8% of the sale value of exempted goods was sustainable when the assessee had reversed proportionate credit and the dispute fell within the period covered by the retrospective amendment to Rule 6 of the Cenvat Credit Rules, 2002.

Analysis: The dispute related to the period from November 2003 to April 2004. A retrospective amendment inserted sub-rule (6) in Rule 6 of the Cenvat Credit Rules, 2002 through the Finance Act, 2010, covering disputes relating to adjustment of credit on inputs used in or in relation to exempted final products for the specified period. The amendment permitted a manufacturer engaged in dutiable and exempted clearances to pay the amount equivalent to credit attributable to exempted goods, with interest as stipulated, and the record showed reversal of proportionate credit by the assessee.

Conclusion: The demand based on 8% of the sale value of exempted goods was not sustainable. The impugned order was set aside and the appeal succeeded.

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