Cenvat Credit reversal before removal may avoid Rule 6(3)(b) payment where exempted goods use common inputs.

Rule 6(3)(b) of the Cenvat Credit Rules, 2002 was construed to apply only where a manufacturer, without maintaining separate accounts for dutiable and exempted goods, is required to pay the prescribed percentage of the exempted goods' value. The majority treated pre-clearance reversal or payment of credit attributable to common inputs as equivalent to non-availment of credit, relying on the scheme of Rule 6 and the principle that reversal before removal deletes the credit entry. On that basis, Rule 6(3)(b) was held inapplicable where such credit had been reversed before removal of the exempted goods, while the dissent read the rule as mandatory and not accommodating reversal.

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Issues: Whether Rule 6(3)(b) of the Cenvat Credit Rules, 2002 applies where the amount equivalent to the Cenvat credit attributable to common inputs used in exempted final products is reversed or paid before removal of the exempted goods.

Analysis: Rule 6(1) prohibits credit on inputs used in exempted goods, while Rule 6(2) requires segregation of inputs for dutiable and exempted goods. Rule 6(3)(b) applies only when the manufacturer, not maintaining separate accounts, is obliged to pay 8% of the exempted goods' value. The majority held that the scheme is pari materia with Rule 57CC and Rule 57AD, and that reversal of credit before clearance amounts to non-availment of credit. The majority relied on the settled principle that debit or reversal before removal deletes the credit entry and satisfies the requirement that credit on exempted goods was not taken.

Conclusion: Rule 6(3)(b) is not applicable when the attributable credit on common inputs used in exempted final products has been reversed or paid before removal of the exempted goods, and the reference is answered in favour of the assessee.

Dissenting Opinion: The dissent held that the language of Rule 6(3)(b) is plain and mandatory, that reversal of credit is not contemplated by the rule, and that an assessee who does not maintain separate accounts must pay the prescribed amount under Rule 6(3)(b).

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