CENVAT credit reversal and exemption compliance: proportionate reversal with interest preserves exemption, while undisclosed Rule 6(3A) quantification fails.

Reversal of proportionate CENVAT credit with interest was treated as sufficient compliance to satisfy the condition for exemption under Notification No. 1/2011-CE, so denial of the exemption was unsustainable. For Rule 6(3A), only common input service credit attributable to exempted clearances could be reversed, and the quantification basis had to be disclosed and verifiable; because the method was not put to the assessee and the computation required verification, the confirmed demand could not stand as framed. The demand, interest and penalty were set aside, and the matter was remanded for de novo adjudication after giving a reasonable opportunity of hearing.

---

---

Issues: (i) whether the assessee was entitled to the benefit of Notification No. 1/2011-CE after paying proportionate CENVAT credit with interest; (ii) whether the demand could be sustained when the adjudicating authority adopted a quantification method for Rule 6(3A) reversal without putting the basis to the assessee and whether the matter required remand.

Issue (i): whether the assessee was entitled to the benefit of Notification No. 1/2011-CE after paying proportionate CENVAT credit with interest.

Analysis: The governing principle applied was that reversal of proportionate credit with interest satisfies the condition for availing the exemption, and denial of the exemption is unsustainable once such compliance is made. The earlier payment and compliance with the proportionate reversal mechanism was treated as sufficient for the exemption issue.

Conclusion: The Revenue's challenge to denial of Notification No. 1/2011-CE failed, and the benefit of the exemption could not be denied on that ground.

Issue (ii): whether the demand could be sustained when the adjudicating authority adopted a quantification method for Rule 6(3A) reversal without putting the basis to the assessee and whether the matter required remand.

Analysis: For Rule 6(3A), only common input service credit attributable to exempted clearances is relevant, and the formula cannot be applied without a disclosed and verifiable basis. Since the method adopted for quantification was not communicated to the assessee and the assessee's computation also required verification, the confirmation of demand could not stand as framed. A fresh decision after giving a reasonable opportunity of hearing was necessary.

Conclusion: The demand, interest, and penalty were set aside and the matter was remanded for de novo adjudication.

Final Conclusion: The Revenue appeals were rejected, while the assessee's appeal succeeded to the extent of setting aside the quantified demand and obtaining remand for fresh adjudication.

Ratio Decidendi: Payment of proportionate CENVAT credit with interest is sufficient to preserve the exemption, and reversal under Rule 6(3A) must be confined to common input service credit on a disclosed and verifiable basis after affording a fair opportunity to the assessee.

---