Cenvat credit reversal bars Rule 6 demand where credit is treated as never taken for steam generation inputs.

Reversal of Cenvat credit on inputs used to generate steam meant the credit was to be treated as never taken, so Rule 6(2) could not be invoked for common inputs used in dutiable and exempted products. Because the precondition for Rule 6(2) was absent, Rule 6(3)(b) could not be applied to demand 10% of the sale value of steam. The demand was therefore unsustainable, and the assessee succeeded.

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Issues: Whether reversal of the Cenvat credit taken on inputs used for generation of steam excluded the applicability of Rule 6(2) and Rule 6(3)(b) of the Cenvat Credit Rules and rendered the demand unsustainable.

Analysis: The disputed credit had initially been taken on chemicals used for generating steam, but the entire credit was subsequently reversed and that reversal was not in dispute. Rule 6(2) applies where common credit-availing inputs are used for both dutiable and exempted final products and separate accounts are not maintained. Once the credit was reversed without utilisation, it was to be treated as not taken, so the precondition for invoking Rule 6(2) was absent. In the absence of Rule 6(2), Rule 6(3) could not be applied to demand 10% of the sale value of steam.

Conclusion: The demand under Rule 6(3)(b) was unsustainable and the assessee succeeded.

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