CENVAT credit reversal verification required before sustaining demand on exempt cement clearances for relief work

A demand of 8% of the value of cement under Rule 6(3)(b) of the CENVAT Credit Rules, in respect of exempt clearances for earthquake relief work under Notification No. 2/2001, was found unsustainable without first verifying whether the corresponding credit had been correctly reversed. The Tribunal followed its earlier approach in a similar matter and held that the correctness of credit reversal had to be examined before the demand could be confirmed. The matter was therefore remanded to the Commissioner for verification of the reversal of credit.

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Issues: Whether the demand of 8% of the value of cement under Rule 6(3)(b) of the CENVAT Credit Rules could be sustained and whether the matter required verification of reversal of credit.

Analysis: The respondents were engaged in manufacture of cement and clinker. The demand related to cement cleared for exemption under Notification No. 2/2001 for earthquake relief work. The Tribunal noted that an earlier order had already remanded a similar issue for verification of whether the appropriate credit had been reversed. Following that approach, the Tribunal found that the demand of 8% of the value of cement could not be upheld without verifying the correctness of the reversal of credit amount.

Conclusion: The demand under Rule 6(3)(b) could not be sustained and the matter was remanded to the Commissioner for verification of the reversal of credit.

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