Retrospective amendment to Cenvat credit rules allowed proportionate reversal for exempted goods, defeating the sale-value demand.

A retrospective amendment to Rule 6 of the Cenvat Credit Rules, 2002, made under the rule-making power in Section 37 of the Central Excise Act, 1944, validated reversal of proportionate Cenvat credit for exempted clearances. On that basis, even where separate accounts were not maintained, the assessee could not be compelled to pay an amount computed at 10% of the sale value of exempted goods under Rule 6(3)(b). The Revenue's reliance on the earlier Tribunal view was not accepted, because the retrospective amendment cured the defect relied upon to sustain the demand.

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Issues: Whether, in view of the retrospective amendment to Rule 6 of the Cenvat Credit Rules, 2002, the assessee was entitled to reverse proportionate Cenvat credit in relation to exempted goods instead of being compelled to pay an amount calculated at 10% of the sale value under Rule 6(3)(b); and whether the assessee's delayed reversal of credit defeated that entitlement.

Analysis: The retrospective amendment made under the rule-making power exercised through Section 37 of the Central Excise Act, 1944 was treated as curing the perceived defect in the assessee's position. On that basis, even where separate accounts were not maintained, the assessee was held entitled to reverse proportionate Cenvat credit. The demand to pay an amount linked to the sale value of exempted goods could not be enforced once the retrospective amendment was applied. The earlier Tribunal view relied upon by the Revenue was therefore not accepted as a reason to sustain the demand.

Conclusion: The question was answered against the Revenue and in favour of the assessee; the assessee was not liable to be compelled to pay the amount based on 10% of the sale value of exempted goods when proportionate reversal of credit was permissible.

Ratio Decidendi: A retrospective amendment validating reversal of proportionate Cenvat credit for exempted clearances prevails over a demand for payment calculated on the sale value of exempted goods under Rule 6(3)(b).

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