Cenvat credit on exempted goods demand set aside where non-availment of input credit required factual verification.

Rule 6(3)(b) of the Cenvat Credit Rules was invoked to demand 10% of the price of exempted goods, but the assessee maintained that no input credit had been taken for those clearances. The record showed that this factual claim had also led to the demand being dropped in a subsequent adjudication, so the issue required verification rather than a conclusive finding against the assessee at the stay stage. The impugned order was set aside and the matter remanded for fresh adjudication after granting an opportunity of hearing.

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Issues: Whether the demand of 10% of the price on exempted goods under Rule 6(3)(b) of the Cenvat Credit Rules was sustainable when the assessee claimed that no credit had been taken on inputs used in the manufacture of exempted goods.

Analysis: The assessee consistently maintained that credit had not been availed in respect of inputs used for exempted clearances. The subsequent adjudication in the same matter had also dropped the demand on noticing that such credit was not taken. Since this factual aspect required verification, the record did not justify a conclusive adjudication against the assessee at the stay stage. The impugned order was therefore set aside and the matter was sent back for fresh decision after granting an opportunity of hearing.

Conclusion: The demand was not finally upheld at this stage, and the matter was remanded for fresh adjudication in favour of the assessee to the extent of setting aside the impugned order.

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