Common-input credit under Cenvat rules survives despite exempt clearances, while exclusive inputs for recorded smart cards remain ineligible.

Module inputs used for both recorded and unrecorded smart cards were treated as common inputs, so the manufacturer could not be denied the Rule 6(3) option merely because exempted clearances predominated. Plastic cards bearing customer-specific particulars were not common inputs and credit was inadmissible only for those exclusively used in recorded smart cards; generic plastic cards remained common inputs. Cenvat credit was also admissible on inputs used in exempted goods exported out of India. Extended limitation and equal penalty were unsustainable for common-input credit, though they could apply to the inadmissible exclusive-input portion. The matter was remitted for recomputation of demand, interest and penalty after excluding common-input credit.

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Issues: (i) Whether the module and plastic cards used in the manufacture of recorded and unrecorded smart cards were common inputs so as to attract the option under Rule 6(3) of the Cenvat Credit Rules, 2004; (ii) whether Cenvat credit was admissible on inputs used in the manufacture of exempted goods exported by the appellant; (iii) whether the extended period and equal penalty were sustainable.

Issue (i): Whether the module and plastic cards used in the manufacture of recorded and unrecorded smart cards were common inputs so as to attract the option under Rule 6(3) of the Cenvat Credit Rules, 2004.

Analysis: Recorded smart cards became exempt only after personalisation, while unrecorded cards remained dutiable after the initial manufacturing stages. The module was held to be a common input for both categories. As regards plastic cards, those bearing customer-specific printed particulars were not common inputs, but plastic cards without such particulars were common inputs. The Rules did not prescribe any minimum percentage of dutiable production for denying the benefit of Rule 6(3), and the manufacturer had opted to pay the prescribed amount on exempted clearances.

Conclusion: The benefit of Rule 6(3) could not be denied in respect of common inputs, but credit was not admissible on plastic cards exclusively used for recorded smart cards.

Issue (ii): Whether Cenvat credit was admissible on inputs used in the manufacture of exempted goods exported by the appellant.

Analysis: Credit relating to exempted goods exported out of India was held admissible in view of the settled position relied upon by the Tribunal. Export of exempted goods did not take the case outside the credit entitlement for inputs going into such exports.

Conclusion: Cenvat credit was admissible in respect of inputs used for exported exempted goods.

Issue (iii): Whether the extended period and equal penalty were sustainable.

Analysis: Since the module and most plastic cards were treated as common inputs, the allegation of wilful misstatement or suppression was not sustainable for those inputs. However, where plastic cards were admittedly customer-specific and exclusively used for recorded smart cards, credit was inadmissible and demand could be raised with consequential interest and penalty.

Conclusion: Extended limitation and penalty were not sustainable for common inputs, but could survive for the inadmissible portion relating to exclusive inputs.

Final Conclusion: The matter was remitted to the Commissioner for recomputation of the demand, interest, and penalty after excluding common-input credit and after granting an opportunity of hearing.

Ratio Decidendi: Where inputs are used commonly for both dutiable and exempted goods, the manufacturer cannot be denied the Rule 6 option merely because exempted clearances predominate; credit is disallowable only for inputs shown to be exclusively used in exempted goods.

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