CENVAT credit reversal and rule 6 compliance cannot be ignored where the assessee's chosen neutralisation method requires verified shortfall before recovery.

Belated reversal of ineligible CENVAT credit, together with interest, may amount to effective non-availment where the statutory obligation is ultimately discharged. In a dispute involving common input-service credit for manufacturing and trading activity, the scheme under rule 6 permitted the assessee to choose the mode of neutralisation, and recovery under rule 14 was confined to any actual shortfall. The demand could not be sustained by mechanically applying the default option under rule 6(3) without first verifying whether compliance under the option actually exercised was deficient. The matter was remitted for limited verification of any deficit and consequential recovery, if any.

---

---

Issues: Whether reversal of ineligible CENVAT credit made after the relevant period and before or prior to adjudication was sufficient compliance under the CENVAT Credit Rules, and whether the demand could be sustained on the basis of the default option under rule 6(3) instead of the option actually exercised by the assessee.

Analysis: The dispute concerned common input-service credit used for both dutiable manufacture and trading activity, with trading treated as an exempted service under rule 2(e) of the CENVAT Credit Rules, 2004 pursuant to Notification No. 3/2011-CE(NT) dated 01.03.2011. The scheme under rule 6 permits the assessee to choose among the prescribed modes of neutralisation, and the authority under rule 14 is confined to recovery of any actual shortfall. The record showed that the assessee had reversed credit and paid interest, and the cited authorities recognise that reversal, even if belated, can amount to effective non-availment of inadmissible credit when the statutory obligation is ultimately discharged. On that footing, the demand based on compulsory application of the harshest option could not stand without first verifying whether the computation under the chosen mechanism was in fact deficient.

Conclusion: The impugned demand on the basis of the default option was not sustainable, and the matter was remitted for limited verification of any deficit in compliance and consequential recovery, if any.

Ratio Decidendi: Where an assessee is entitled to choose the mode of neutralisation under rule 6, belated reversal with interest cannot be ignored as a matter of law, and recovery under rule 14 must be confined to any proven shortfall after examining compliance under the chosen option.

---