Facts: 

• The applicant is namely, M/s. Marudhar Spinning Mills Pvt Ltd (M/s MSMPL) Surat, was engaged in the manufacture of taxable as well as exempted goods.
• The Appellant availed the consolidated Cenvat Credit by single entry for the period April 2016 to March 2017 and reversed an amount equal to 6% of the Value of such exempted goods as per the provisions of Rule 6(3) of the Cenvat Credit Rules, 2004 by single entry for the period April 2016 to March 2017. Further, they availed cenvat credit on exempted goods on monthly basis and reversed an amount equal to 6% of the value of the exempted finished goods on monthly basis for the period April 2017 to June 2017. 
• A show cause notice was served on M/s MSMPL for denial of benefit of Notification dated 09.07.2004, for demand of central excise duty of Rs. 6,96,22,836/- on value of goods cleared during the period April 2016 to June 2017 along with interest and penalty and for the amount of Rs. 3,34,18,901/- @ 6% already reversed under Rule 6(3) be declared invalid. 
• Adjudicating authority vides order dated 30-8-2006 denied the benefit of Notification dated 09.07.2004 confirmed the demand of Central Excise Duty amounting to Rs. 6,96,22,836/- along with interest and penalty and ordered for the appropriation of Cenvat credit of Rs. 3,52,83,382/- against the determined duty liability which was reversed by the appellant.

Issue:

• Whether such reversal of credit, either by payment of 6% in terms of Rule 6 or by debiting the same from the Cenvat credit account, would result to satisfying the condition of notification No. 30/2004-CE in question.

Order:

• The authorities observed that in the case of Hello Minerals Water (P) Ltd. v. Union of India, reported in 2004 (174) E.L.T. 422 (All.), Hon'ble High court observed that wherein it is held that reversal of Modvat credit amounts to non-taking of credit on the inputs. Hence, the benefit has to be given of the notification granting exemption/rate of duty on the final products since the reversal of credit on the input was done at the Tribunal’s stage. While arriving at this conclusion, the Allahabad High Court has referred to various judgments under which such reversal was made subsequently and still the benefit was given to the assessee.
• The authorities observed that appellant are eligible for exemption under Notification No. 30/2004-C.E. when they have reversed 6% of the value of exempt goods in terms of Rule 6(3)(i). We find the appellant’s claim on the applicability of sub-rule (3D) of Rule 6 is also legally sustainable. The said sub-rule provides for a deeming provision to the effect that payment of amount under sub-rule (3) should be considered as credit not taken for the purpose of such exemption notification. 
• In view of above analysis and findings, we are of the considered view that the impugned order is unsustainable, and accordingly, we set aside the same. 
• The appeal is allowed and department’s appeal is dismissed.