Proportionate credit reversal under Rule 6 satisfied compliance; export credit denial and value-based demand were unsustainable.

Reversal of proportionate Cenvat credit attributable to exempt goods was treated as sufficient compliance with Rule 6, so a further demand to pay 10% or 5% of the value of chilli seeds, chilli de-oiled cake or marigold was not justified. The text also treats de-oiled cake as waste or a by-product, outside the same reversal requirement, and notes that a timing objection based on the Finance Act, 2010 did not defeat an already made substantive reversal. Credit on goods received in finished condition and later exported was also held not deniable under the applicable credit scheme. The result was complete relief on the disputed demand and credit denial.

---

---

Issues: (i) Whether the assessee was liable to pay 10% or 5% of the value of chilli seeds and chilli de-oiled cake or marigold for the relevant period, despite reversal of proportionate credit attributable to exempt goods and the nature of de-oiled cake as waste. (ii) Whether credit availed on goods received in finished condition and later exported could be denied.

Issue (i): Whether the assessee was liable to pay 10% or 5% of the value of chilli seeds and chilli de-oiled cake or marigold for the relevant period, despite reversal of proportionate credit attributable to exempt goods and the nature of de-oiled cake as waste.

Analysis: The chilli seeds emerged before any input was used in the extraction process and the department did not rebut the claim that no cenvat credit had been availed on inputs used for their manufacture. The assessee had also reversed proportionate credit attributable to input services used for the exempt product with interest. The de-oiled cake was treated as a waste or by-product, and credit reversal was not required on that count. The Tribunal accepted that reversal of proportionate credit attributable to exempted goods satisfies Rule 6 compliance and that the timing objection based on the Finance Act, 2010 did not defeat the substantive reversal already made.

Conclusion: The demand under Rule 6 for payment of 10% or 5% of value was not sustainable, and the assessee succeeded on this issue.

Issue (ii): Whether credit availed on goods received in finished condition and later exported could be denied.

Analysis: The credit of Rs. 3,15,028/- related to goods received in finished condition and subsequently exported. The Tribunal followed the settled line of decisions recognizing that such credit cannot be denied in the circumstances considered, especially when the goods are exported under the applicable credit regime.

Conclusion: Denial of credit on the exported goods was unsustainable, and the assessee succeeded on this issue as well.

Final Conclusion: The impugned order was set aside in full and the assessee obtained complete relief on the substantive demands and credit reversals in dispute.

Ratio Decidendi: Where proportionate credit attributable to exempt goods is reversed, Rule 6 compliance is achieved; waste or by-products do not attract reversal on the same footing; and credit on goods received for export cannot be denied merely because of their subsequent exported clearance under the credit scheme.

---