Proportionate credit reversal defeats Rule 6 trading margin demand and no interest arises without utilisation of credit.

Reversal of proportionate common input service credit attributable to trading activity negated the demand for 6% of the difference between sale price and purchase price under Rule 6 of the Cenvat Credit Rules, 2004; the remaining trading-turnover based demand was therefore unsustainable. Interest under Rule 14 was not payable on belated reversal because the credit was never utilised and the assessee's credit balance remained sufficient throughout the relevant period. The impugned order was set aside, and both the Rule 6 demand and interest liability were rejected.

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Issues: (i) Whether the demand of 6% of the difference between the sale price and purchase price of traded goods under Rule 6 of the Cenvat Credit Rules, 2004 was sustainable after reversal of proportionate common input service credit. (ii) Whether interest was payable on belated reversal of credit when the credit balance remained sufficient and was not utilised.

Issue (i): Whether the demand of 6% of the difference between the sale price and purchase price of traded goods under Rule 6 of the Cenvat Credit Rules, 2004 was sustainable after reversal of proportionate common input service credit.

Analysis: Once proportionate credit attributable to common input services used for trading activity is reversed, the liability to pay 6% of the difference between purchase price and sale price does not survive. The correctness of the quantum of reversal remains open to verification by the Revenue, but the demand under Rule 6 cannot be sustained merely on the basis of trading turnover once proportionate reversal has been made.

Conclusion: The demand under Rule 6 was held unsustainable and the assessee succeeded on this issue.

Issue (ii): Whether interest was payable on belated reversal of credit when the credit balance remained sufficient and was not utilised.

Analysis: Interest under Rule 14 is attracted not by mere availment alone but by wrongful availment coupled with utilisation. Where the credit remained unutilised and the assessee maintained a sufficient balance exceeding the amount required for reversal, interest is not payable for the relevant period.

Conclusion: Interest was held to be not payable and this issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal succeeded, with both the demand under Rule 6 and the interest liability rejected.

Ratio Decidendi: Reversal of proportionate common input service credit relating to trading activity negates a demand under Rule 6 based on the trading margin, and interest under Rule 14 is chargeable only when the wrongly taken credit is utilised.

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