Cenvat credit reversal before show cause notice defeats Rule 6 demand for exempted services and bars recovery.

Rule 6 of the Cenvat Credit Rules, 2004 demand for alleged failure to maintain separate accounts for exempted services was held unsustainable where the assessee had already reversed the entire credit with interest before the show cause notice. The settled principle applied was that subsequent reversal of credit treats the credit as never having been availed, so the demand cannot survive on that basis. The Commissioner (Appeals)' order was upheld and the Department's appeal was dismissed.

---

---

Issues: Whether the demand raised under Rule 6 of the Cenvat Credit Rules, 2004 for alleged non-maintenance of separate accounts and reversal of credit on exempted services was sustainable when the entire credit had already been reversed along with interest before the show cause notice.

Analysis: The disputed credit had been reversed prior to issuance of the show cause notice. The settled legal position applied was that once credit originally availed is subsequently reversed, the position is to be treated as if no credit had been taken. The order also relied on prior decisions following the same principle and on the accepted view that the demand under Rule 6 cannot survive in such circumstances.

Conclusion: The demand was held to be unsustainable and the order of the Commissioner (Appeals) was upheld. The Department's appeal was dismissed.

Ratio Decidendi: Subsequent reversal of Cenvat credit before issuance of the show cause notice has the effect of treating the credit as never availed, and a demand under Rule 6 on that basis cannot be sustained.

---