Reversal of proportionate CENVAT credit with interest defeats a separate 6% Rule 6(3) demand on traded goods.

Where proportionate CENVAT credit attributable to trading activity is reversed along with applicable interest, a separate demand of 6% under Rule 6(3) of the Cenvat Credit Rules, 2004 on traded goods does not survive. The operative basis for treating the traded turnover as giving rise to an additional liability disappears once the attributable credit has been restored and interest paid for the intervening period. On that footing, the further demand was unsustainable and the matter favoured the assessee.

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Issues: Whether, after reversal of proportionate CENVAT credit attributable to trading activity along with interest, the demand of 6% under Rule 6(3) of the Cenvat Credit Rules, 2004 on the difference between sale price and purchase price of traded goods could survive.

Analysis: The appellant had reversed the proportionate credit relatable to traded goods and paid interest for the period between availment and reversal. The demand under Rule 6(3) was based on a 6% liability on traded goods treated as exempted turnover. Once the attributable credit stood reversed with interest, the basis for demanding the further 6% amount did not survive.

Conclusion: The demand under Rule 6(3) was unsustainable and the finding goes in favour of the assessee.

Ratio Decidendi: Where proportionate CENVAT credit attributable to trading activity is reversed with applicable interest, a separate demand computed at 6% under Rule 6(3) does not survive.

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