Verified reversal of proportionate Cenvat credit on common input services defeats the demand for exempted services.

Voluntary reversal of proportionate Cenvat credit attributable to exempted services, when verified as correct by the adjudicating authority, was treated as sufficient to meet the departmental objection. The Tribunal found no reason to interfere with the Commissioner's order because the assessee had reversed the common input service credit with interest and the calculation had been accepted on verification. The demand based on non-maintenance of separate accounts therefore did not survive, and the departmental challenge was rejected.

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Issues: Whether the demand arising from Cenvat credit taken on common input services used for exempted services was sustainable when the assessee had reversed the proportionate credit and the reversal had been verified.

Analysis: The order records that the assessee had voluntarily reversed the proportionate Service Tax credit with interest, and that the adjudicating authority had verified the calculation and found it in order. In these circumstances, the reasoning adopted by the Tribunal was that the Commissioner's order did not call for interference and the credit reversal was sufficient to meet the dispute raised by the department.

Conclusion: The departmental challenge to the order was rejected, and the finding in favour of the assessee was upheld.

Final Conclusion: The appeal failed since the verified proportionate reversal of credit on common services for exempted output was accepted as sufficient.

Ratio Decidendi: Where proportionate Cenvat credit attributable to exempted services has been voluntarily reversed and the reversal is verified as correct, the demand based on non-maintenance of separate accounts does not survive.

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