Rule 6 Cenvat demand for exempted by-products failed after full input credit reversal with interest

Reversal of the full Cenvat credit on inputs, with interest, meant there was no basis to demand 8% of the value of exempted clearances under Rule 6 of the Cenvat Credit Rules, 2002. The exempted removals were treated as by-products arising in the manufacture of the main dutiable product, and the record did not support any further reversal or demand, including in light of the Board circular relied on below. On those facts, the Revenue failed to dislodge the Commissioner (Appeals)' findings, and the demand was held not sustainable.

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Issues: Whether the demand of 8% of the value of exempted goods could be sustained under Rule 6 of the Cenvat Credit Rules, 2002 when the assessee had reversed the entire Cenvat credit taken on inputs with interest and the exempted clearances were by-products generated in the manufacture of the main dutiable product.

Analysis: The Commissioner (Appeals) had found, on the basis of the record, that the show cause notice itself acknowledged reversal of the full Cenvat credit taken on inputs during the relevant period along with interest. On that factual foundation, it was held that there was no warrant to proceed for recovery of an amount equal to 8% of the value of exempted goods. The exempted clearances were also treated as by-products arising in the course of manufacture of refined oil, and the record did not support any further reversal or demand in light of the Board circular relied upon below. The Revenue's appeal did not disclose any material to dislodge these findings.

Conclusion: The demand was not sustainable and the assessee was not liable to pay 8% of the value of the exempted goods.

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