Proportionate reversal of Cenvat credit for wheeled-out electricity can satisfy Rule 6 compliance and block further recovery.

Proportionate reversal of Cenvat credit attributable to electricity cleared to outside parties was treated as sufficient compliance with Rule 6 of the Cenvat Credit Rules. The Tribunal noted that once the assessee had debited the credit linked to the wheeled-out electricity before the show cause notice, no undue benefit remained and recovery of 8% or 10% of the value of such electricity was unwarranted. The principle applied was that credit is not admissible for inputs attributable to electricity wheeled out, but reversal of the attributable credit cures the objection. On that basis, the Revenue's claim for additional payment failed.

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Issues: Whether the assessee was liable to pay 8% or 10% of the value of electricity cleared to outside parties under Rule 6 of the Cenvat Credit Rules, where the credit attributable to such electricity had already been reversed.

Analysis: The assessee had calculated and debited the Cenvat credit attributable to the electricity cleared outside before issuance of the show cause notice. The Tribunal noted that proportionate reversal of credit has been treated in precedent as sufficient compliance with the rule governing exempted clearances. It further relied on the principle that credit is not admissible for inputs attributable to electricity wheeled out, but observed that no undue benefit had been retained once the attributable credit stood reversed. On that basis, recovery of 8% or 10% of the value of the electricity cleared outside was held to be unwarranted.

Conclusion: The assessee was not liable to pay 8% or 10% of the value of the electricity cleared outside, and the Revenue's appeal failed.

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