Rule 6(1) Cenvat credit reversal does not apply to used containers sold after use, where they were not manufactured goods.

Rule 6(1) of the Cenvat Credit Rules, 2004 applies only where an assessee manufactures exempted goods and seeks Cenvat credit connected to those goods. Bags and barrels used as containers for raw material, then sold after use, were not treated as manufactured goods arising from the assessee's manufacturing activity. On that basis, Explanation 1 also did not apply, because waste or scrap not arising from manufacture falls outside the rule's ambit. The demand and penalty were therefore set aside, and the appeal succeeded.

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Issues: Whether Rule 6(1) of the Cenvat Credit Rules, 2004, and Explanation 1 thereto applied to bags and barrels sold by the manufacturer after use in production, and whether an amount equal to 6% of their value was payable.

Analysis: Rule 6(1) applies where an assessee manufactures both dutiable and exempted goods and seeks Cenvat credit in relation to exempted goods. The bags and barrels in question were not manufactured goods of the appellant but were merely containers used for raw material and sold after use. The reasoning applied was that waste of raw material not arising from the manufacturing process cannot be treated as resulting from manufacture, and the same principle governed the present facts. Since the goods did not arise out of the appellant's manufacturing activity, the rule and its explanation had no application.

Conclusion: Rule 6(1) and Explanation 1 thereto were not applicable, and the demand could not be sustained.

Final Conclusion: The demand and penalty were set aside and the appeal succeeded.

Ratio Decidendi: Cenvat credit reversal under Rule 6(1) is attracted only in relation to exempted goods manufactured by the assessee, and waste or scrap not arising from the manufacturing process does not fall within its ambit.

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