Rule 6 CENVAT demand fails where proportionate credit reversal was intimated and the notice lacked a challenge to quantum.

Under Rule 6 of the CENVAT Credit Rules, 2004, a demand for 5%/6% of the value of exempted goods was held unsustainable where the assessee had opted for proportionate reversal of CENVAT credit and had already furnished reversal statements. The notice alleged non-compliance with Rule 6(3)(ii) and (iii), but it did not specifically allege that the quantum of reversal was incorrect. Adjudication could not therefore rest on a new basis by invoking the formula under Rule 6(3A)(c)(iii), because the matter must remain confined to the allegations in the show cause notice.

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Issues: Whether the demand for 5%/6% of the value of exempted goods under Rule 6 of the CENVAT Credit Rules, 2004 could be sustained when the assessee had opted for proportionate reversal of CENVAT credit and the adjudicating authority's finding on the quantum of reversal went beyond the show cause notice.

Analysis: The notice proposed recovery on the footing of alleged non-compliance with Rule 6(3)(ii) and (iii), but the assessee had already intimated the Department of its option to reverse proportionate credit and furnished statements showing the quantum reversed. The notice did not contain any specific allegation that the quantum of reversal was incorrect. In such circumstances, the adjudicating authority could not introduce a new basis by holding that the reversal was not in accordance with the formula under Rule 6(3A)(c)(iii), because adjudication must remain confined to the allegations set out in the show cause notice.

Conclusion: The demand of 5%/6% of the value of exempted products was not sustainable and the assessee succeeded.

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