Cenvat credit reversal for exempted goods defeats further Rule 6 demand on sale value, the Tribunal reasoned.

Reversal of Cenvat credit attributable to exempted goods, together with interest, was treated as placing the inputs in the same position as if no credit had been taken for those goods. On that basis, Rule 6 did not support a further demand of 8% or 10% of the value of the exempted or by-product goods, especially where the reversed credit was lower than the amount demanded. The Tribunal relied on settled coordinate Bench, Larger Bench and Supreme Court principles recognising that such reversal satisfies the non-availment requirement for exemption purposes, so the additional recovery was not sustainable.

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Issues: Whether, after reversal of the Cenvat credit attributable to exempted goods along with interest, the assessee remained liable to pay 8% or 10% of the value of such exempted/by-product goods under Rule 6.

Analysis: The appeals concerned common inputs used in dutiable and exempted goods, where the assessees had already reversed the credit relatable to the exempted goods before issuance of the show cause notice, together with interest. The Tribunal applied the settled principle that such reversal is to be treated as if no credit had been taken on the inputs used for the exempted goods. On that footing, Rule 6 did not justify a further demand of 8% or 10% of the sale value of the exempted goods, particularly when the reversed credit amount was far lower than the amount sought to be recovered. The Tribunal relied on earlier coordinate and Larger Bench decisions, as well as the Supreme Court's approach recognising that reversal of credit satisfies the condition of non-availment for exemption purposes.

Conclusion: The liability to pay 8% or 10% of the value of the exempted goods was held not sustainable after reversal of credit with interest, and the assessees succeeded.

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