Cenvat Credit Option for Common Inputs Prevails Where Manufacturer Chooses Prescribed Payment on Exempt Clearances

Rule 6 of the Cenvat Credit Rules, 2002 permits a manufacturer using common inputs for dutiable and exempted final products either to maintain separate accounts or, alternatively, to forgo that route and pay 8% of the price of exempted clearances. Once the statutory option under Rule 6(3) is validly exercised, the manufacturer remains within the credit scheme and credit cannot be denied merely by insisting on Rule 6(2) alone. On that basis, denial of Cenvat credit was found unsustainable and the assessee's appeal succeeded.

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Issues: Whether the manufacturer, having used common inputs for dutiable and exempted final products, could validly exercise the option under the Cenvat Credit Rules not to maintain separate accounts and discharge 8% of the price of exempted clearances, thereby retaining entitlement to credit on inputs.

Analysis: Rule 6(2) of the Cenvat Credit Rules, 2002 contemplates maintenance of separate accounts where common inputs are used for dutiable and exempted goods. Rule 6(3) of the Cenvat Credit Rules, 2002, however, confers an option on the manufacturer not to maintain separate accounts and instead pay 8% of the price of the exempted final products. The Tribunal held that, once that statutory option is exercised, the manufacturer is complying with the credit scheme and the Revenue cannot compel adoption of the separate-account route or deny credit merely by treating the matter as if Rule 6(2) alone applied.

Conclusion: The denial of Cenvat credit was unsustainable and the appeal was allowed in favour of the assessee.

Ratio Decidendi: Where the credit rules expressly permit a manufacturer using common inputs for dutiable and exempted goods to forgo separate accounts and pay the prescribed amount on exempted clearances, that statutory option cannot be overridden by treating the manufacturer as bound only by the separate-account requirement.

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