Tribunal rules in favor of appellant on credit reversal for exempted goods compliance

The Tribunal set aside the penalty imposed on the appellant, ruling that once the appellant complied with Rule 6(3) by paying 6% of the value of exempted goods and voluntarily reversing the credit, the Revenue could not demand reversal of the entire credit availed on inputs used exclusively for exempted goods. This decision favored the appellant's argument that maintaining separate accounts for inputs was impractical after making the required payment under Rule 6(3)(i).

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Issues:
1. Liability to reverse credit availed on inputs used exclusively for exempted goods.
2. Liability to pay interest and equivalent penalty.
3. Challenge against the imposition of penalty.

Analysis:
1. The appeal was against the order directing the appellant to reverse the amount of Rs. 10,34,237/- for credit availed on inputs used exclusively for exempted goods. The appellant was a manufacturer of certain goods exempted from duty and had availed credit on inputs used in their manufacture. However, they were found to have used some inputs exclusively for exempted goods, leading to a demand for repayment of CENVAT credit. The Commissioner (A) partially upheld the demand, leading to the appeal.

2. The appellant argued that they had opted to pay 6% of the value of exempted goods under Rule 6(3)(i) due to difficulties in maintaining separate accounts for inputs. They contended that once this payment was made, insisting on separate accounts was contrary to the rule's objective. The appellant had availed total credit of Rs. 56,79,065/- and reversed Rs. 10,34,237/- to offset the credit availed on inputs for exempted goods. They cited precedents to support their position.

3. The Revenue argued that the appellant wrongly availed CENVAT credit on inputs exclusively used for exempted goods, justifying the penalty. However, the Tribunal found that the appellant had followed the prescribed rule by paying 6% of the exempted goods' value and had reversed the credit voluntarily. Citing previous decisions, the Tribunal held that once the appellant had complied with Rule 6(3), the Revenue could not insist on reversing the entire credit. Consequently, the penalty was set aside, allowing the appeal of the appellant.

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