Substantial justice limits disproportionate CENVAT credit demands where exempted-clearance credit is reversed with interest and no evasion is shown.

Credit attributable to exempted clearances, once reversed with interest, should not ordinarily sustain a disproportionate demand under Rule 6(3)(i) of the CENVAT Credit Rules, 2004 where no deliberate evasion or unfair advantage is shown. The text treats the matter as a procedural lapse rather than a substantive misuse of credit, and applies substantial justice to prevent enforcement of a demand far exceeding any limited excess availment. The reversed credit and paid interest are confirmed as the operative compliance, while the impugned demand is not sustained.

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Issues: Whether, in respect of credit attributable to exempted clearances, the demand under Rule 6(3)(i) of the CENVAT Credit Rules, 2004 could be sustained when the appellant had already reversed the credit along with interest.

Analysis: The credit relatable to exempted goods stood reversed and the interest liability was also discharged. The undisputed excess availment was limited, while the demand raised under the procedural requirement was far higher than the benefit, if any, derived. No deliberate deception or unfair advantage was established. In these circumstances, the dispute was treated as one of procedure, and the principle of substantial justice was applied to avoid prolonging a low-value demand.

Conclusion: The demand was not sustained as such. The credit reversed by the appellant and the interest already paid were confirmed, and the impugned order was set aside.

Ratio Decidendi: Where credit relatable to exempted goods is reversed with interest and no deliberate evasion is shown, a purely procedural lapse should not justify a disproportionate demand; substantial justice prevails over technical non-compliance.

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