Proportionate Cenvat reversal on exempt medicaments satisfied separate-account compliance; the 8% demand was unsustainable.

Reversal of proportionate Cenvat credit on common inputs used in exempted medicaments, supported by batch records and bin cards, was treated as substantial compliance with the requirement to maintain separate accounts. The tribunal held that suo motu reversal of credit attributable to exempt clearances is equivalent to non-availment of credit, so the demand of 8% of the value of exempted goods could not be sustained merely because a separate ledger format was not maintained. The impugned order was modified and the appeal was allowed.

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Issues: Whether reversal of proportionate Cenvat credit on common inputs used in exempted medicaments, supported by batch records and bin cards, satisfied the requirement of maintaining separate accounts so as to avoid the demand of 8% of the value of exempted goods.

Analysis: The appellant had maintained batch records and bin cards for the medicaments manufactured, and on that basis had reversed the credit attributable to inputs used in exempted clearances. The record showed suo motu reversal of the proportionate credit, which was treated as equivalent to non-availment of credit. In these circumstances, the requirement of separate maintenance of accounts stood substantially complied with, and there was no basis to invoke the 8% demand merely because a separate ledger format had not been maintained in the manner alleged by the Revenue.

Conclusion: The demand of 8% was unsustainable, and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was modified and the appeal was allowed.

Ratio Decidendi: Where common input credit attributable to exempted goods is duly reversed on the basis of maintained production and consumption records, the statutory requirement regarding separate accounts is satisfied and an additional demand linked to the value of exempted clearances cannot be sustained.

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