Full reversal of Cenvat credit defeats Rule 57CC demand on transferred limestone used for dutiable cement production.

Where Cenvat credit on duty-paid explosives used in mining is fully reversed with interest, it is treated as never having been availed. On that footing, the basis for invoking Rule 57CC and demanding 8% of the value of limestone transferred between units did not survive, because the limestone ultimately went into dutiable cement production. The demand was therefore held unsustainable and set aside in favour of the assessee.

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Issues: Whether the demand for reversal of 8% of the value of limestone transferred from Unit-I to Unit-II under Rule 57CC of the Modvat Rules was sustainable after the entire credit on duty-paid explosives used in mining had been reversed with interest.

Analysis: The limestone processed in Unit-I and transferred to Unit-II was ultimately used in the manufacture of dutiable cement. The credit taken on duty-paid explosives used for mining had been reversed in full with interest. Once such credit stood reversed, it was to be treated as if it had not been availed at all. In that situation, the basis for applying Rule 57CC and demanding 8% of the value of the transferred limestone did not survive. The principle was supported by the Supreme Court ruling relied upon in the order.

Conclusion: The demand under Rule 57CC was not justified and was set aside in favour of the assessee.

Ratio Decidendi: Where Cenvat credit is fully reversed with interest, the credit is to be treated as never having been availed, and a demand predicated on such availed credit cannot be sustained.

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