Cenvat credit on merger and Rule 6 reversal for non-excisable goods require factual verification, not mechanical denial.

Transfer of Cenvat credit on merger cannot be denied solely because prior permission under Rule 10(3) was not obtained; compliance with the rule's conditions and the transferee's entitlement must be examined on the facts, so the matter may require fresh adjudication with a hearing. For Polymer Modified Bitumen treated as non-manufactured, payment under Rule 6(3) was considered sufficient credit neutralisation where common inputs were used, and the entire attributable credit could not be mechanically reversed without verifying the statutory framework and factual compliance. The discussion therefore treats Rule 6 as applicable to non-excisable goods for this purpose, subject to reassessment on remand.

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Issues: (i) whether the credit balance transferred on merger could be denied merely for want of prior permission under Rule 10(3) of the Cenvat Credit Rules; (ii) whether, in respect of Polymer Modified Bitumen held to be non-manufactured, the entire Cenvat credit attributable to that product was required to be reversed or whether payment under Rule 6(3) was sufficient.

Issue (i): Whether the credit balance transferred on merger could be denied merely for want of prior permission under Rule 10(3) of the Cenvat Credit Rules.

Analysis: The transfer of credit was examined in the light of Rule 10(3), the factual satisfaction of the prescribed conditions, and the fact that the objection in the notice rested mainly on absence of permission from the jurisdictional authority. The matter required verification of compliance with the rule and the transferee's ability to satisfy the conditions governing transfer on merger.

Conclusion: The issue was remanded to the adjudicating authority for fresh decision after granting opportunity of hearing.

Issue (ii): Whether, in respect of Polymer Modified Bitumen held to be non-manufactured, the entire Cenvat credit attributable to that product was required to be reversed or whether payment under Rule 6(3) was sufficient.

Analysis: The product had already suffered an amount equivalent to 6% of its value under Rule 6(3). The Court treated Rule 6(3) as a mechanism to neutralize credit attributable to goods not suffering duty and held that the fact that the product was non-excisable did not justify expunging the entire credit. It also noted the inclusion of non-excisable goods within the scope of exempted goods for the purpose of the rule.

Conclusion: The demand for reversal of the entire credit was not sustainable, and the amount paid under Rule 6(3) was held to suffice, subject to verification and requantification on remand.

Final Conclusion: The appeal succeeded only in part, with one issue remanded for fresh adjudication and the other decided in favour of the assessee on the extent of credit reversal required.

Ratio Decidendi: Where common inputs are used for goods later treated as non-excisable, payment made under the Rule 6 mechanism may be treated as sufficient credit neutralization, and the entire credit cannot be mechanically demanded back without examining the statutory framework and factual compliance.

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