Scope of show cause notice and proportionate CENVAT reversal: entire credit demand cannot exceed the notice or disregard prior reversal

A demand for reversal of the entire input service credit was held unsustainable because the adjudicating authority confirmed a liability beyond the scope of the show cause notice. On the substantive issue, credit remained admissible for input services used in dutiable products, and the proportionate credit attributable to exempted products had already been reversed with interest. Non-intimation of the option under Rule 6(3A) did not, by itself, justify demanding the full credit or the alternate 6% amount when proportionate reversal had been made.

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Issues: Whether the confirmation of the entire input service credit was sustainable when the show cause notice did not propose such recovery, and whether the appellant's proportionate reversal of credit on common input services used for exempted products was sufficient under Rule 6(3A) of the CENVAT Credit Rules, 2004.

Analysis: The demand for reversal of the entire credit could not be sustained because the adjudicating authority had confirmed a liability not alleged in the show cause notice, thereby travelling beyond the scope of the notice. On the merits, the appellant remained entitled to credit on input services used for dutiable products, and the proportionate credit attributable to exempted products had already been reversed along with interest. The failure to intimate the option under Rule 6(3A) did not justify forcing the appellant to pay 6% of the value of exempted clearances when the proportionate reversal had been made and accepted at the stage of adjudication.

Conclusion: The confirmation of the entire input service credit was set aside, and only the proportionate credit of Rs. 5,10,346/- already reversed with interest was sustained.

Final Conclusion: The appeal succeeded in part, with the impugned order modified to confine relief to the proportionate reversal already made and the remaining demand annulled.

Ratio Decidendi: A demand cannot be confirmed beyond the allegations in the show cause notice, and where proportionate credit attributable to exempted clearances has already been reversed, the absence of intimation under Rule 6(3A) does not by itself justify demanding the entire credit or the alternate 6% amount.

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