Rule 6 Cenvat credit reversal before clearance does not replace separate accounts for exempted inputs.

Rule 6 of the Cenvat Credit Rules requires a manufacturer dealing in both dutiable and exempted goods to maintain separate accounts for inputs used in exempted goods; if that is not done, the statutory consequence under Rule 6(3) follows. Mere reversal of credit before clearance does not by itself satisfy Rule 6(1) or cure non-compliance with Rule 6(2), because the scheme is a structured mechanism to address input correlation and avoid ad hoc apportionment. The text and structure of the rule prevail over hardship arguments, and later pro rata provisions cannot be applied retrospectively.

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Issues: Whether, under Rule 6 of the Cenvat Credit Rules, reversal of credit taken on inputs used in exempted goods before clearance is sufficient, or whether the manufacturer must maintain separate accounts under Rule 6(2) and, failing that, pay the amount prescribed under Rule 6(3).

Analysis: Rule 6(1) bars Cenvat credit on inputs used in exempted goods except in the circumstances mentioned in Rule 6(2). Rule 6(2) requires a manufacturer engaged in both dutiable and exempted final products to maintain separate accounts for receipt, consumption and inventory of inputs meant for exempted goods and to take credit only on inputs intended for dutiable goods. Rule 6(3) supplies the consequence where such separate accounts are not maintained. The scheme is a conscious statutory mechanism akin to the earlier presumptive levy under Rule 57CC, designed to address the difficulty of input-output correlation and to avoid the need for estimation or ad hoc apportionment. The contention that mere reversal of credit before removal satisfies Rule 6(1) was rejected as inconsistent with the text and structure of the rule. Hardship in some cases cannot override the plain language of the delegated legislation, and later pro rata provisions could not be applied retrospectively.

Conclusion: Mere reversal of credit before clearance does not amount to compliance with Rule 6 where separate accounts are not maintained; the prescribed consequence under Rule 6(3) applies and the assessee's contention fails.

Ratio Decidendi: Where Rule 6 expressly requires separate accounts for inputs used in exempted and dutiable goods, credit on exempted inputs is not saved by unilateral reversal before clearance, and the statutory consequence for non-maintenance of accounts must follow.

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