Proportionate Cenvat credit reversal remains valid despite non-intimation, defeating the 6% demand on exempted clearances.

Non-intimation of the option under Rule 6(3A) for proportionate reversal of common Cenvat credit was treated as a curable procedural lapse, not a defect that extinguished the substantive right to reverse credit. Because the assessee had already reversed proportionate credit before the show-cause notice, and credit on inputs used for exempted goods had not in fact been availed, the higher demand of 6% on exempted clearances was held unsustainable. The record also did not support treating non-maintenance of separate records or audit detection as suppression justifying the enhanced demand. The proportionate reversal was accepted as sufficient compliance.

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Issues: Whether non-intimation of the option under Rule 6(3A) of the Cenvat Credit Rules, 2004 for proportionate reversal of credit on common input services rendered the reversal ineffective and justified demand of 6% of the value of exempted goods/services.

Analysis: The assessee had already reversed proportionate credit before issuance of the show-cause notice. The dispute was confined to common input services, and the record showed that credit on inputs used for exempted goods was not in fact availed. The requirement to intimate the department while exercising the option under Rule 6(3A) was treated as a procedural requirement. Failure to intimate did not, by itself, defeat the statutory option to reverse proportionate credit. The reasoning also rejected the inference that non-maintenance of separate records or audit detection automatically established suppression so as to justify the higher demand.

Conclusion: The demand of 6% was held unsustainable, and the proportionate reversal was accepted as sufficient compliance. The issue was decided in favour of the assessee.

Final Conclusion: The impugned order confirming the higher duty demand, interest, and penalty was set aside, and the appeal succeeded.

Ratio Decidendi: Non-intimation of the option under Rule 6(3A) is a curable procedural lapse and does not extinguish the substantive entitlement to discharge liability by proportionate reversal of common credit.

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