Proportionate CENVAT reversal with interest defeats Rule 6(3) demand on exempted clearances.

Where proportionate CENVAT credit relatable to common input used for exempted goods is reversed before the show-cause notice and interest for delayed reversal is paid, the demand under Rule 6(3) for 10% of the value of exempted clearances does not survive. The retrospective amendment under Section 73 of the Finance Act, 2010 was also considered, but the decisive point remained the actual reversal of attributable credit with interest. On that basis, the demand was treated as unsustainable and set aside in favour of the assessee.

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Issues: Whether, where proportionate CENVAT credit on common input used for exempted goods had been reversed before the show-cause notice and the balance interest was paid thereafter, the demand of 10% of the value of exempted goods under Rule 6(3) could still be sustained.

Analysis: The appellant had reversed the proportionate credit relatable to furnace oil used for exempted goods before issuance of the show-cause notice and had paid interest for the delay, with the balance interest also paid subsequently. The issue was held to be covered by consistent judicial precedent that once the proportionate credit attributable to exempted goods is reversed and interest for delayed reversal is paid, the demand under Rule 6(3) does not survive. The retrospective amendment under Section 73 of the Finance Act, 2010 was also taken into account, but the decisive factor remained the actual reversal of proportionate credit with interest.

Conclusion: The demand of 10% of the value of the exempted goods was not sustainable and was set aside in favour of the assessee.

Ratio Decidendi: Where proportionate CENVAT credit attributable to exempted clearances is reversed and interest for delayed reversal is paid, the statutory demand under Rule 6(3) for a percentage of the exempted goods' value cannot be sustained.

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