Reversal of Cenvat credit with interest can neutralise alleged availment, defeating Rule 6(3)(b) demands for exempted goods.

Reversal of common Cenvat credit with interest was treated as neutralising the alleged availment of credit, so the credit was regarded as never having been taken. On that reasoning, a demand under Rule 6(3)(b) for failure to maintain separate accounts between exempted and dutiable goods could not survive once the credit had already been reversed. The order notes that the demand, computed as a percentage of exempted turnover, was therefore unjustified and follows earlier Tribunal and Supreme Court authorities applying the same principle.

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Issues: Whether, after reversal of the common Cenvat credit with interest, a demand under Rule 6(3)(b) of the Cenvat Credit Rules could still be sustained for non-maintenance of separate accounts in respect of exempted and dutiable goods.

Analysis: The credit involved was only Rs. 14,363/-, and it had already been reversed with interest. On that basis, the credit was to be treated as not having been taken at all. Applying the ratio that reversal of credit neutralises the alleged availment, the consequent demand computed at 10% of the value of exempted goods was held to be unjustified. The reasoning followed the settled approach adopted in earlier Tribunal and Supreme Court decisions relied upon in the order.

Conclusion: The demand under Rule 6(3)(b) was not sustainable and the appeal succeeded.

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