Cenvat credit on exempted goods records: separate input accounts and benefit of doubt defeated the 8% demand

An assessee manufacturing exempted Chloroquin Phosphate Tablets was not required to pay 8% of the value of the exempted goods under Rule 57CC(1) where it maintained separate records for inputs and asserted that no credit had been taken on inputs used for the exempt product. The absence of authenticated records was not held against the assessee because the records had been taken over by the department and later could not be traced despite efforts. On the evidence, the assessee was given the benefit of doubt on maintenance of separate accounts, the demand was held unsustainable, and the penalty issue did not survive. The assessee's appeal succeeded and the revenue's appeal failed.

---

---

Issues: Whether the assessee was liable to pay an amount equal to 8% of the value of exempted goods under Rule 57CC(1) on the ground that it had availed credit on inputs used in the manufacture of exempted Chloroquin Phosphate Tablets, and whether penalty was sustainable.

Analysis: The assessee maintained that separate records of inputs used in the manufacture of the exempted product were kept, and that no credit had been availed on the relevant inputs. The records were not produced before the adjudicating authority because they had been taken over by the department, and the records were later not traceable despite efforts. In these circumstances, the absence of authenticated records could not be treated against the assessee. The amount involved was also small in comparison with the consequence of the demand, and the evidence on record supported giving the assessee the benefit of doubt regarding maintenance of separate accounts.

Conclusion: The assessee was not liable to pay 8% of the value of the exempted goods, and the demand was not sustainable. The appeal of the assessee succeeded and the revenue appeal failed.

---