I am directed to say that a doubt has been raised regarding legal provisions for recovery of amount not paid by an assessee in terms of the provisions of rule 6 of the CENVAT Credit Rules, 2001 (Rule 57CC of the erstwhile Central Excise Rules, 1944).

2.     The matter has been examined in the Board. It is stated that the basic principle underlying the CENVAT scheme is that credit is admissible if duty is paid on final products. Attention is drawn to sub-rule (1) of Rule 6 of the CENVAT Credit Rules, 2001, which clearly provides that CENVAT credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in circumstances specified in sub-rule (2). The provisions of sub-rule (2) and (3) of rule 6 provide as to how to deal with and account for the inputs and credit of duty in cases where the inputs are used in manufacture of both dutiable as well as exempt products. It follows from the provisions that if the manufacturer does not fulfill the requirements of either sub-rule (2) [i.e. maintaining separate accounts) or sub-rule (3) (i.e. paying 8% of total price of exempted goods, other than exceptions specified in clause (a)] then in terms of sub-rule (1) the assess shall not be allowed credit on such quantity which is used in the manufacture of exempted goods. Consequently, where the assessee has not paid the amount, the availment of corresponding credit on inputs is incorrect. The recovery of such credit taken incorrectly is squarely covered by the provisions of Rule 12 (erstwhile rule 571). Necessary action may be taken accordingly.

3.     Please acknowledge receipt of this circular.

4.     Trade and field formations may be suitably informed.