Cenvat credit and reversal demands require proof of actual credit-taking or short receipt, not mere presumption.

Rule 3(4) of the Cenvat Credit Rules, 2002 applies only where credit was actually taken on inputs or capital goods cleared as such from the factory; a demand cannot rest on presumption without evidence of credit having been availed. The text also states that Cenvat credit should not be denied merely because debit notes were issued, unless there is proof of short receipt of inputs. On the facts described, the absence of evidence on both alleged credit-taking and short receipt meant the disallowances, interest, and penalty could not survive.

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Issues: (i) Whether an amount under rule 3(4) of the Cenvat Credit Rules, 2002 was payable on clearance of old capital goods when no evidence showed that Cenvat credit had been taken on those goods; (ii) Whether Cenvat credit of Rs. 3,684 was deniable merely because debit notes were issued, in the absence of evidence of short receipt of inputs.

Issue (i): Whether an amount under rule 3(4) of the Cenvat Credit Rules, 2002 was payable on clearance of old capital goods when no evidence showed that Cenvat credit had been taken on those goods.

Analysis: The liability under rule 3(4) arises only when inputs or capital goods, on which Cenvat credit has been taken, are removed as such from the factory. The assessee consistently claimed that the machinery was purchased long before the relevant period and that no Cenvat credit had ever been availed. The department produced no material to rebut that claim or to show that credit had in fact been taken. A demand under rule 3(4) could not be sustained on a mere presumption in the absence of supporting evidence.

Conclusion: The demand under rule 3(4) was not sustainable and was rightly set aside in favour of the assessee.

Issue (ii): Whether Cenvat credit of Rs. 3,684 was deniable merely because debit notes were issued, in the absence of evidence of short receipt of inputs.

Analysis: The department sought to infer short receipt of inputs from the issue of debit notes, while the assessee explained that the debit notes related to cash discount. Beyond that inference, no evidence was produced to establish that the inputs were short received. Denial of Cenvat credit required proof of the alleged short receipt, and not a bare presumption.

Conclusion: The credit denial of Rs. 3,684 was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The demands, interest, and penalty founded on those two disallowances could not survive, and the appeal succeeded.

Ratio Decidendi: A demand under rule 3(4) of the Cenvat Credit Rules, 2002 can be sustained only where it is shown that Cenvat credit had actually been taken on the goods removed as such, and Cenvat credit cannot be denied on mere presumption without evidence of the alleged factual basis for disallowance.

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