Pre-notice reversal of CENVAT credit can defeat a demand under Rule 6(3)(b) when exempted goods are involved.

Reversal of CENVAT credit attributable to exempted goods before issuance of the show cause notice was treated as sufficient to prevent the demand under Rule 6(3)(b) of the CENVAT Credit Rules, 2004 from surviving on that basis. The High Court accepted that the Tribunal's remand was limited to verifying the extent and timing of reversal, together with the related interest claim, and found no reason to interfere with those directions. The issue was therefore answered in favour of the assessee, subject to the factual verification ordered below.

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Issues: Whether reversal of CENVAT credit before issuance of the show cause notice takes the case out of the demand under Rule 6(3)(b) of the CENVAT Credit Rules, 2004.

Analysis: The appeal turned on the effect of reversal of CENVAT credit by the assessee before the show cause notice. The Court accepted the governing principle that where credit attributable to exempted goods is reversed prior to issuance of the notice, the liability invoked on that basis does not survive, and the factual verification directed by the Tribunal was confined to the extent of reversal and the ancillary claim regarding interest.

Conclusion: The issue was answered in favour of the assessee, and the High Court found no ground to interfere with the Tribunal's remand and directions.

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