Penalty under Section 11AC is not attracted for non-payment under Rule 6(3)(b) of the Cenvat Credit Rules.

Where common inputs are used for dutiable and exempted final products without separate records, the Cenvat Credit Rules provide a specific mechanism for payment and recovery of the amount attributable to exempted goods. On that footing, failure to pay the amount under Rule 6(3)(b) does not, by itself, attract penalty under Section 11AC of the Central Excise Act, 1944, because the rules do not expressly provide for such penal action for this default. The penalty order was therefore unsustainable.

---

---

Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 is leviable for non-payment of the amount payable under Rule 6(3)(b) of the Cenvat Credit Rules, 2002.

Analysis: The assessee used common inputs for dutiable and exempted final products and had not maintained separate records. The disputed issue was only the penalty. The scheme of Rule 6(3) and its explanations provides for payment and recovery of the amount attributable to exempted goods, and Rule 12 applies the recovery provisions for wrong or erroneous Cenvat credit. The rules do not provide for penalty under Section 11AC for failure to pay the amount under Rule 6(3)(b). Following the binding view that Section 11AC is not attracted to such a default, the penalty could not be sustained.

Conclusion: Penalty under Section 11AC was not leviable for the amount payable under Rule 6(3)(b), and the penalty order was unsustainable.

Final Conclusion: The assessee succeeded on the penalty issue and the appeal was allowed.

Ratio Decidendi: Where the Cenvat Credit Rules prescribe a specific recovery mechanism for non-payment of the amount attributable to exempted goods, penalty under Section 11AC of the Central Excise Act, 1944 is not attracted unless the rules expressly so provide.

---