Common input credit and exempted by-products: Rule 6(3)(b) held inapplicable where separate accounts were not realistically possible.

Rule 6(3)(b) of the Cenvat Credit Rules, 2002 was held inapplicable where a common input was used in repeated manufacture cycles for a dutiable main product and an exempted by-product, and the assessee could not realistically maintain separate accounts because exact input consumption could not be segregated. The provision requiring payment of a percentage of the value of exempted goods was treated as operating only where separate accounts were practicable but not maintained. As the assessee had also reversed the credit taken, the demand was found unsustainable.

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Issues: Whether Rule 6(3)(b) of the Cenvat Credit Rules, 2002 was attracted where the assessee used a common input in the manufacture of a dutiable main product and an exempted by-product, but could not maintain separate accounts because the input was recovered and reused in repeated cycles of manufacture.

Analysis: The common input, Hexane, was used in the solvent extraction process for obtaining refined vegetable oil, and the residue emerged as de-oiled cake. The process made it impossible to quantify the exact input consumption attributable separately to the dutiable product and the exempted by-product. The provision requiring payment of a percentage of the value of exempted goods was treated as applicable only where separate accounts could realistically be maintained but were not maintained. Since the assessee was not capable of maintaining such separate accounts and had also reversed the credit taken, the demand based on Rule 6(3)(b) was held to be unsustainable.

Conclusion: Rule 6(3)(b) was not applicable, and the demand against the assessee could not be sustained.

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