Cenvat credit on mine-cavity cement denied, while penalty fails without proof of suppression or intent to evade duty.

Cenvat credit on cement used to fill cavities in mines was discussed and denied because the material was treated as construction or maintenance input, not as goods used directly or indirectly in or in relation to manufacture of zinc lead. The note also explains that penalty under Section 11AC of the Central Excise Act applies only where fraud, collusion, wilful misstatement, suppression, or intent to evade duty is established; on the stated facts, those ingredients were not shown, so the penalty was held unsustainable. The result was affirmation of credit disallowance but deletion of the penalty.

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Issues: (i) whether cement used for filling cavities in mines qualified as an input for availment of Cenvat credit; (ii) whether penalty under Section 11AC of the Central Excise Act, 1944 could be sustained.

Issue (i): whether cement used for filling cavities in mines qualified as an input for availment of Cenvat credit.

Analysis: The definition of input under Rule 57 AA(d) of the Central Excise Rules, 1944 and Rule 2(g) of the Cenvat Credit Rules, 2002 is broad, but credit is available only where the goods are used directly or indirectly in or in relation to manufacture of the final product. Cement used for supporting or repairing mine cavities was held to be a construction or maintenance material and not a material used in the manufacture of zinc lead. The contrary authorities cited on behalf of the assessee were found distinguishable on their facts, while the decisions relied upon by the Revenue supported denial of credit on such use of cement.

Conclusion: The denial of Cenvat credit on cement was upheld and the assessee was not entitled to the credit.

Issue (ii): whether penalty under Section 11AC of the Central Excise Act, 1944 could be sustained.

Analysis: Penalty under Section 11AC is attracted only where the statutory ingredients of fraud, collusion, wilful misstatement or suppression with intent to evade duty are present. Since the dispute turned on interpretation of the cenvat provisions and the record did not establish those ingredients, the penal provision was held inapplicable.

Conclusion: The penalty was set aside and the assessee succeeded on this issue.

Final Conclusion: The credit disallowance was affirmed, but the penalty was deleted, resulting in a partial allowance of the appeals.

Ratio Decidendi: Cenvat credit is available only when the goods are used directly or indirectly in or in relation to manufacture of the final product, and penalty under Section 11AC requires proof of the specified culpable conduct.

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