Rule 6 reversal for exempted goods can follow cleared sale value when common inputs are used and compliance is already made.

Where common inputs are used for both dutiable and exempted products, Rule 6 of the Cenvat Credit Rules, 2001 permits reversal on the basis of the ascertainable value of the exempted product as cleared, rather than restricting computation to the value of the captively used end product. The Bombay High Court accepted that the assessee had reversed credit at clearance by paying 8% on the sale value of rectified spirit, found no requirement for a separate inventory in the circumstances, and rejected the department's narrower reading of Rule 6 and Rule 57AD. No further reversal was required and the departmental appeal failed.

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Issues: Whether the assessee was liable to reverse 8% of the value of the exempted product under Rule 6 of the Cenvat Credit Rules, 2001, and whether the department could insist on computing the amount on the value of the end product used captively for manufacture of IMFL instead of on the value of rectified spirit sold out of the factory.

Analysis: The assessee used common inputs in the manufacture of both dutiable and exempted final products and maintained no separate inventory. The authorities found that rectified spirit was sold from the factory and that its sale price was ascertainable. Rule 6 of the Cenvat Credit Rules, 2001, read with the pari materia provisions of Rule 57AD of the Central Excise Rules, 1944, was held to permit reversal on the basis adopted by the assessee. The Court rejected the department's contention that the provision applied only when the exempted and dutiable products were produced by a common process or that only Rule 6(1) governed the case. It also accepted that the assessee had complied with the reversal mechanism by paying 8% at clearance.

Conclusion: The assessee was not liable to make any further reversal, and the department's challenge failed.

Final Conclusion: No substantial question of law arose, and the departmental appeal was dismissed.

Ratio Decidendi: Where common inputs are used for dutiable and exempted products, reversal under Rule 6 may be made on the basis of the ascertainable value of the exempted product as cleared, and the provision cannot be narrowly confined so as to defeat the reversal mechanism otherwise complied with by the assessee.

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