Cenvat credit on common inputs for exempted goods was held inadmissible, and the limited reversal demand was upheld.

Cenvat credit on common inputs used in exempted final products was held inadmissible under the relevant credit rules, because the scheme is intended to prevent cascading of duty and does not extend to inputs used for exempt clearances. The adjudication was confined to the credit attributable to such common inputs, rather than the original proposal to demand an amount linked to the value of exempted goods, and that limited demand was upheld. The assessee's challenge therefore failed.

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Issues: Whether Cenvat credit on common inputs used in the manufacture of exempted final products was inadmissible and liable to reversal under the relevant credit rules.

Analysis: The adjudication was limited to the Cenvat credit attributable to common inputs used in exempted goods, instead of the original proposal for a demand equal to 8% of the value of exempted goods. The applicable rule position was treated as clear: credit on inputs used in the manufacture of exempted final products is not admissible. The object of Cenvat credit is to avoid cascading of duty, and that object does not justify allowing credit where the final product itself is exempt. On that basis, the challenged order was held to be lawful and not requiring interference.

Conclusion: The demand confined to the credit attributable to common inputs was upheld, and the assessee's challenge failed.

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