Rule 57CC(9) liability for exempted clearances survived credit reversal where separate input records were not maintained.

Non-maintenance of separate inventory and accounts for inputs used in exempted clearances attracted liability under Rule 57CC(9) to pay 8% of the price of the exempted goods. Reversal of Modvat credit did not extinguish that statutory consequence, and the explanation for how the reversal was made was found unsatisfactory. The contention that the rule lacked a separate machinery for recovery was rejected because the amount became recoverable as a consequence of wrongful credit availment in relation to exempted goods. The demand under Rule 57CC(9) was therefore confirmed.

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Issues: Whether the assessee, having reversed Modvat credit on inputs used in exempted goods, remained liable to pay 8% of the price of the exempted clearances under Rule 57CC(9), and whether absence of a separate recovery mechanism defeated the demand.

Analysis: The assessee was required to maintain separate inventory and accounts for inputs used in exempted goods, but did not do so. Under Rule 57CC(9), the consequence of such non-compliance was liability to pay 8% of the price of the exempted goods. Reversal of the credit did not erase that statutory liability, and the manner in which the reversal was said to have been made was not satisfactorily explained. The argument that the rule provided no mechanism for recovery was rejected because the amount under the rule was recoverable as a consequence of wrongful availment of credit on inputs used in exempted clearances.

Conclusion: The demand under Rule 57CC(9) was rightly confirmed, and the challenge to recovery on the basis of reversal of credit and alleged absence of machinery provision failed.

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