Proportionate Cenvat reversal cannot be displaced by a higher Rule 6 demand for alleged procedural lapses.

Where an assessee opts for proportionate reversal under Rule 6(3)(ii) and reverses the attributable Cenvat credit under Rule 6(3A), the Revenue cannot replace that mechanism with the higher percentage-based demand under Rule 6(3)(i) merely by alleging procedural non-compliance. The Tribunal held that alleged defects in following the prescribed procedure do not, by themselves, render the chosen option ineffective or justify shifting the liability to the alternative rule. As the attributable credit had been reversed, the demand under Rule 6(3)(i) was unsustainable and the matter was decided in favour of the assessee.

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Issues: Whether the demand could be sustained by applying Rule 6(3)(i) of the Cenvat Credit Rules, 2004 when the assessee had opted for Rule 6(3)(ii) and had reversed the attributable credit under Rule 6(3A).

Analysis: The demand was founded on the premise that alleged procedural deficiencies in following Rule 6(3A) made the option under Rule 6(3)(ii) ineffective and attracted the alternative liability under Rule 6(3)(i). The Tribunal held that the statutory scheme does not confer on the Revenue a choice to shift the assessee to Rule 6(3)(i) merely because some procedural lapse is alleged. It noted that the assessee had reversed the entire attributable credit, and relied on the view that once proportionate credit is reversed with the prescribed payment, the liability cannot be expanded to the higher amount under Rule 6(3)(i).

Conclusion: The demand under Rule 6(3)(i) was not sustainable and the issue was decided in favour of the assessee.

Final Conclusion: The order of the lower appellate authority was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Where an assessee has validly opted for the proportionate reversal mechanism and has reversed the attributable Cenvat credit under the prescribed procedure, the Revenue cannot substitute that choice with the penal percentage-based demand under Rule 6(3)(i) merely on the basis of alleged procedural non-compliance.

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