Input credit reversal compliance: full reversal accepted, exempted-clearance demand set aside, with interest payable and no penalty.

Reversal of the entire credit availed on common inputs was treated as sufficient compliance with the statutory option for proportionate reversal where inputs were used for both dutiable and exempted final products, so the 8% demand on exempted clearances could not survive. The Tribunal held that the assessee's full credit reversal met the requirement, but interest for the intervening period remained payable at the applicable rate. Penalty was not imposable, as the statutory consequence did not arise on these facts.

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Issues: Whether reversal of the entire credit availed on common inputs was sufficient in place of proportionate reversal so as to set aside the demand of 8% on exempted clearances, and whether interest and penalty were still leviable.

Analysis: Section 70 of the Finance Act, 2010 provided an option to an assessee to reverse proportionate credit availed on inputs used for dutiable and exempted final products, in which event the reversal would be treated as sufficient. The appellant had already reversed the full credit availed on the inputs instead of proportionate credit. On that basis, the Tribunal held that the reversal made was sufficient to meet the statutory requirement and the demand of 8% on exempted clearances could not survive. At the same time, interest for the intervening period remained payable at the applicable rate, and the statutory consequence of penalty did not arise.

Conclusion: The demand of 8% on exempted clearances was set aside, the reversal of credit was treated as sufficient, interest for the intervening period was held payable, and penalty was held not imposable.

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