Reversal of input credit at clearance defeats the 8% payment demand on exempted goods under excise credit rules.

Where common inputs were used for exempted and dutiable goods, the prescribed percentage payment under Rule 57AD arose only if credit on inputs for exempted goods had been taken without maintaining separate accounts. Rule 57CC was treated as pari materia with Rule 57AD. Because the credit attributable to inputs used in exempted goods was reversed at the time of clearance, the assessee satisfied the relevant legal requirement and no separate 8% payment was due on the value of exempted goods. The Revenue's challenge therefore failed.

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Issues: Whether, where common inputs were used for exempted and dutiable goods and the credit taken on inputs used for exempted goods was reversed at the time of clearance, the assessee was still liable to pay an amount equal to 8% of the value of the exempted goods under Rule 57AD of the Central Excise Rules, 1944.

Analysis: Rule 57CC was treated as pari materia to Rule 57AD. The controlling principle applied was that the liability to pay a prescribed percentage of the value of exempted goods arises only when credit of specified duty on inputs is taken and separate accounts of receipt and use of inputs for exempted and dutiable goods are not maintained. Here, the credit attributable to inputs used in exempted goods had been reversed at the time of clearance, and that satisfied the legal requirement relied upon by the assessee.

Conclusion: The assessee was not liable to pay 8% of the value of the exempted goods, and the Revenue's challenge failed.

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