Rule 6 credit reversal prevents interest on captive-consumed molasses treated as common input for exempted and dutiable goods.

Where molasses was used as a common input for both dutiable and exempted final products, reversal of proportionate CENVAT credit under Rule 6 satisfied the condition attached to Notification No. 67/95-CE. The amount treated as duty on molasses was in substance only the Rule 6 reversal, so it did not amount to delayed duty payment on the inputs and no interest was payable. The interest demand was therefore unsustainable and was set aside.

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Issues: Whether interest was payable on the amount relatable to molasses cleared for captive consumption when the assessee was manufacturing dutiable and exempted final products and had reversed proportionate CENVAT credit under Rule 6 of the CENVAT Credit Rules, 2004.

Analysis: The clearance of molasses for captive use did not, in the facts of the case, amount to a duty default attracting interest. The dispute had already been settled in the assessee's own case that molasses was a common input for manufacture of both rectified spirit and denatured spirit. Once proportionate credit was reversed in terms of Rule 6, the assessee satisfied the condition attached to Notification No. 67/95-CE. The amount sought to be treated as duty on molasses was in substance only the Rule 6 reversal, and interest could not be levied on that basis.

Conclusion: Interest demand was unsustainable and was rightly set aside; the assessee succeeded.

Ratio Decidendi: Where inputs are used in the manufacture of both exempted and dutiable final products and the assessee reverses proportionate credit as required under Rule 6, the amount so reversed is not to be treated as delayed duty payment on the inputs so as to attract interest.

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