Cenvat credit reversal and separate records defeated the Rule 6(3) demand, with penalties and interest also set aside.

Rule 6(3) of the Cenvat Credit Rules, 2004 demand was held unsustainable where the appellant maintained separate records for cenvatable and non-cenvatable inputs and showed that no credit was taken on inputs used in exempted goods, while proportionate credit on common input services had been reversed. Chartered Accountant certificates, including revised certificates produced during hearing, supported the claim of non-availment and reversal. On the figures furnished, the credit not taken or reversed exceeded the amount demanded, so the demand could not survive. Interest, penalty on the appellant, and personal penalty on the manager were therefore also not maintainable.

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Issues: Whether the demand of 5% / 10% under Rule 6(3) of the Cenvat Credit Rules, 2004 was sustainable where the appellant claimed that no credit was taken on inputs used in exempted goods and proportionate credit relating to common input services had been reversed.

Analysis: The appellant maintained separate records for cenvatable and non-cenvatable inputs and explained the transfer entries between records as arising from subsequent use of inputs in dutiable or exempted goods. The claimed non-availment and reversal of credit was supported by Chartered Accountant certificates, including revised certificates placed during hearing. On the figures produced, the total credit not taken or reversed exceeded the amount demanded under Rule 6(3), and the demand was not shown to survive even without entering into the disputed manner of maintenance of accounts.

Conclusion: The demand under Rule 6(3) of the Cenvat Credit Rules, 2004 was not sustainable, and the related interest, penalty on the appellant, and personal penalty on the manager were also not maintainable. The appeals were allowed and the impugned order was set aside.

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