Separate accounting under CENVAT credit rules can comply without a fixed format, but unreversed exempt-credit still attracts interest.

Separate accounting for input services can satisfy Rule 6 of the CENVAT Credit Rules, 2004 even without any prescribed statutory format, where the assessee substantiates a bona fide and verifiable classification of direct, common and ineligible credit through records and certificates. The Tribunal accepted the assessee's method and rejected the departmental objection on compliance. However, credit attributable to exempted services that remained unreversed continued to require reversal, and interest was payable on that quantified balance because reversal operates as non-availment only to the extent actually made. Relief was therefore limited to the reversed portion, with the unreversed credit and interest liability sustained.

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Issues: (i) Whether the assessee had maintained separate accounts and records for input services used in taxable and exempted services so as to satisfy Rule 6 of the CENVAT Credit Rules, 2004; (ii) whether the credit attributable to exempted services, not yet reversed, was recoverable with interest.

Issue (i): Whether the assessee had maintained separate accounts and records for input services used in taxable and exempted services so as to satisfy Rule 6 of the CENVAT Credit Rules, 2004.

Analysis: The assessee produced Chartered Accountant certificates, internal accounting guidelines, and supporting records showing classification of input services into direct credit, common credit, and ineligible credit. The record also showed that credit relatable to exempted services was written off in the profit and loss account and that monthly reversals were made for common input services. There is no prescribed statutory format for maintaining such separate records under Rule 6, and the factual enquiry conducted in one appeal supported the assessee's method of accounting.

Conclusion: The assessee is held to have maintained separate records for the purpose of Rule 6, and the departmental objection on this count fails.

Issue (ii): Whether the credit attributable to exempted services, not yet reversed, was recoverable with interest.

Analysis: Although the assessee's system of accounting was accepted, the summary furnished before the Tribunal showed that a quantified amount of credit attributable to exempted services still remained unreversed. The legal effect of reversal is treated as non-availment of credit, but only to the extent the reversal is actually made. Therefore, the remaining attributable credit continued to require reversal together with interest.

Conclusion: The quantified unreversed amount was held payable with interest, and relief was granted only to that extent.

Final Conclusion: The assessee's appeals were allowed in substance, but only after requiring reversal of the quantified balance credit with interest, while the Department's appeal was rejected.

Ratio Decidendi: Where separate accounting records are maintained in a bona fide and verifiable manner, the absence of a prescribed format does not by itself defeat compliance with Rule 6, and reversal of ineligible credit operates as non-availment only to the extent actually reversed.

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