Retrospective credit reversal regime overrides 8% demand where proportionate credit and interest were already paid.

A retrospective amendment governing common-input cases for dutiable and exempted goods shifted the liability framework to reversal of actual credit attributable to exempted final products. Where the assessee had maintained common inputs, reversed proportionate credit with interest, and substantially complied with the amended regime, the demand for 8% of the value of exempted goods was not sustainable. A procedural omission in filing the post-amendment application was not treated as fatal when the assessee had bona fide pursued remedies and had otherwise met the substantive requirement.

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Issues: Whether the demand of 8% of the value of exempted goods was sustainable where common inputs were used for both dutiable and exempted products and the assessee had reversed proportionate credit with interest under the retrospective amendment.

Analysis: The manufacturing activity involved common inputs used in the production of both dutiable and exempted final products, and separate inventory and accounts were not maintained. The assessee, however, reversed the credit attributable to the exempted goods on a proportionate basis and paid interest. The retrospective amendment introduced by Section 69 of the Finance Act, 2010 provided for reversal of actual credit attributable to inputs used in exempted final products, and the Court held that the amended scheme governed the controversy. The absence of an application within the prescribed time under the amended procedure was not treated as fatal where the assessee had been bona fide prosecuting its remedies and had substantially complied with the retrospective regime.

Conclusion: The demand of 8% of the value of exempted goods was not sustainable, and the issue was decided in favour of the assessee.

Final Conclusion: The appeal failed and the Tribunal's view setting aside the duty demand was upheld.

Ratio Decidendi: Where a retrospective amendment substitutes the liability framework for common-input cases involving exempted and dutiable goods, proportionate reversal of the attributable credit with interest constitutes sufficient compliance, and a procedural omission in the post-amendment application requirement does not defeat the substantive benefit.

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