Separate accounts for common inputs required under excise credit rules; 8% demand upheld, but penalty was reduced.

Failure to maintain separate accounts for common inputs used in both dutiable and exempted final products attracted the statutory consequence of paying an amount equal to 8% of the price of the exempted clearances under the relevant Central Excise/Cenvat rules, and the demand was upheld. The record showed that invoices alone were maintained for the two streams, but the prescribed separate accounts for receipt, consumption and inventory were not kept, and no contrary evidence rebutted that finding. The penalty was treated as excessive in the circumstances and was reduced to a nominal amount of Rs. 5,000.

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Issues: (i) Whether the demand of 8% of the sale price of exempted final products was sustainable for failure to maintain separate accounts of common inputs used in dutiable and exempted products; (ii) Whether the penalty imposed under the excise provisions required reduction.

Issue (i): Whether the demand of 8% of the sale price of exempted final products was sustainable for failure to maintain separate accounts of common inputs used in dutiable and exempted products.

Analysis: The appellant did not establish compliance with the procedure requiring separate accounts for receipt, consumption, and inventory of common inputs. The finding that invoices were maintained for the two streams, but separate accounts were not maintained as required under the erstwhile Rule 57AD of the Central Excise Rules, 1944 and Rule 6(3)(b) of the Cenvat Credit Rules, 2001, was not rebutted by any contrary evidence. Once separate accounts were not maintained, the statutory consequence of paying an amount equal to 8% of the price of the exempted final products followed under the applicable rules.

Conclusion: The demand was upheld and was held to be in accordance with law.

Issue (ii): Whether the penalty imposed under the excise provisions required reduction.

Analysis: Although the demand was sustained, the penalty of equal amount was considered harsh in the circumstances. The case did not warrant penalty at the level originally imposed, and a lesser penalty was found appropriate.

Conclusion: The penalty was reduced to Rs. 5,000.

Final Conclusion: The liability to pay the demanded amount was affirmed, but the penal consequence was moderated by reducing the penalty.

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