Authority: High Court at Calcutta

Order Date: 12 August 2026

Case Overview

  • Parties: Appellant – Central Excise Department (Revenue); Respondent – M/s. Ganges Valley Foods Private Limited, a biscuit manufacturer.
  • Nature of Proceeding: Appeal under Section 35G of the Central Excise Act, 1944 against the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) order dated 5 June 2024.
  • Background: The respondent manufactured both dutiable biscuits and exempt biscuits (retail price ≤ Rs 100/kg) during FY 2010‑11 to 2015‑16. Common inputs were used for both product streams. Under Rule 6 of the CENVAT Credit Rules, 2004, the assessee must either maintain separate accounts for such inputs or comply with the mechanisms in Rule 6(3) – either pay a prescribed percentage of the value of exempted goods or reverse proportionate credit as per Rule 6(3A).
  • Revenue’s Allegations: The department found that the respondent did not maintain separate accounts and failed to make the statutory monthly reversals in ER‑1 returns for FY 2010‑11 to 2014‑15 (except July 2014‑Mar 2015). Show‑cause‑cum‑demand notices dated 28 April 2015 and 26 April 2016 demanded Rs 21,95,15,813 and Rs 5,78,83,997 respectively, together with interest and penalties. The Revenue later issued a consolidated demand of Rs 27,73,99,810 under Rule 6(3)(i).
  • Respondent’s Position: The respondent availed total CENVAT credit of Rs 95,88,077 on common inputs, reversed Rs 68,78,976 in accordance with Rule 6(3A), leaving net credit of Rs 27,09,101. It submitted intimation letters at the start of each FY and Chartered Accountant certificates at year‑end to substantiate the reversals.
  • CESTAT Decision (5 June 2024): The Tribunal held that the respondent either did not avail credit on exempted goods or had correctly reversed the proportionate credit, and therefore dismissed the Revenue’s demand.
  • Revenue’s Appeal: The Revenue contended that the respondent failed to reflect reversals in ER‑1 returns for the majority of the disputed period and did not timely intimate the Superintendent, arguing that any procedural lapse forfeits the right to proportionate reversal, making the fixed‑percentage demand under Rule 6(3)(i) applicable.

Final Outcome

  • The High Court affirmed that the respondent correctly elected the proportionate reversal route under Rule 6(3A) and complied substantively, as evidenced by the CA certificates and intimation letters.
  • The Court held that the Revenue cannot unilaterally switch the assessee to the more punitive option under Rule 6(3)(i); the choice of compliance method rests exclusively with the assessee.
  • Minor procedural lapses in ER‑1 return disclosures were deemed insignificant where substantial compliance was demonstrated.
  • The demand of approx Rs 27.74 crore was found to be disproportionate to the total common credit of less than Rs 96 lakh and therefore unlawful.
  • Consequently, the Court upheld the CESTAT order, dismissed the Revenue’s appeal, and ordered that no costs be awarded.

Topics: CENVAT Credit Compliance, Excise Duty Litigation