Reversal of wrongly availed Cenvat credit with interest bars the 10% demand on exempted clearances under Rule 6(3)(b).

Where common inputs were used for exempted and dutiable products and separate accounts were not maintained, reversal of the credit attributable to exempted clearances with interest was treated as equivalent to non-availment of credit. On that basis, the Tribunal held that the demand to pay 10% of the value of exempted goods under Rule 6(3)(b) of the Cenvat Credit Rules, 2005 could not be sustained. The assessee was therefore not liable for the disputed demand.

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Issues: Whether reversal of the credit attributable to exempted clearances along with interest absolved the assessee from liability to pay 10% of the value of exempted goods under Rule 6(3)(b) of the Cenvat Credit Rules, 2005.

Analysis: The assessee had used common inputs for both exempted and dutiable products and had not maintained separate accounts. The credit relatable to exempted goods was, however, reversed along with interest. The Tribunal followed the jurisdictional High Court decisions holding that once the wrongly availed credit is reversed with interest, the situation is treated as non-availment of credit and the demand of 10% of the value of exempted goods cannot be sustained.

Conclusion: The demand was not sustainable and the assessee succeeded on the issue.

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