Cenvat credit and exempted clearances: Rule 57AD applies only when dutiable and exempt goods are handled concurrently.

Rule 57AD applies only where a manufacturer avails Cenvat credit and simultaneously manufactures or clears both dutiable and exempted final products, requiring separate input accounts or payment of the prescribed amount on exempted goods. Where the assessee manufactured only one final product, had reversed the credit standing in the account, did not take credit during exempted clearances, and later cleared goods on duty after the exemption limit was exhausted, the rule was not attracted. On those facts, the demand and penalty could not be sustained.

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Issues: Whether Rule 57AD of the Central Excise Rules applied where the assessee manufactured only one final product, reversed the credit lying in the account on the relevant date, did not avail credit during clearance of exempted goods, and later cleared goods on payment of duty after the exemption limit was exhausted.

Analysis: Rule 57AD applies only where a manufacturer avails Cenvat credit and manufactures final products chargeable to duty as well as exempted goods, in which event separate accounts for inputs are required or, in the alternative, an amount equal to eight per cent of the price of exempted final products becomes payable. The record did not show that the assessee was simultaneously manufacturing or clearing both dutiable and exempted products. The Revenue also did not rebut the claim that the credit standing in the account had been reversed and that no credit was taken during the period when the exempted clearances were made. The later payment of duty after exhaustion of the exemption limit did not alter the legal position.

Conclusion: Rule 57AD was not applicable, and the demand and penalty could not be sustained.

Ratio Decidendi: The obligation to maintain separate accounts or pay the prescribed amount arises only when exempted and dutiable final products are manufactured or cleared concurrently while availing Cenvat credit.

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