Cenvat credit reversal before exempted clearance treated as compliance, defeating the 8% demand on exempt supplies.

Reversal of Cenvat credit on common inputs before clearance of exempted final products was treated as sufficient compliance with the obligation to maintain separate accounts, because no specific timing requirement for segregation was prescribed. The Tribunal relied on prior rulings that subsequent reversal of inadmissible credit must be treated as if the credit had not been taken, and held that a Board circular could not override that settled position. On that basis, the demand to pay 8% of the value of exempted clearances was held unsustainable.

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Issues: Whether reversal of Cenvat credit on common inputs, made before clearance of exempted final products, amounts to compliance with the requirement to maintain separate accounts and defeats the demand to pay 8% of the value of exempted clearances.

Analysis: The appellants took credit on imported common inputs on receipt in the factory and did not segregate them at that stage, but they identified the inputs at the time of issue for manufacture and reversed the credit relatable to inputs used in exempted goods before such goods were cleared. The requirement under the relevant excise and Cenvat provisions was treated as satisfied because no specific point of time for segregation was prescribed and prior decisions had held that subsequent reversal of inadmissible credit must be treated as if such credit had not been taken. The Board circular relied on in the impugned order did not answer the timing issue and could not prevail over consistent Tribunal rulings.

Conclusion: The demand of 8% on exempted clearances was unsustainable, and the assessee succeeded.

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