Proportionate Cenvat credit on common input services upheld, with Section 11AC penalty dropped for absence of mala fide intent

Cenvat credit on common input services used for more than one entity may be restricted proportionately to the extent attributable to the recipient's own premises, and the appellate authority's apportionment was upheld because it was not shown to be contrary to the credit framework. Penalty under Section 11AC was also unsustainable because the respondent was entitled to the major portion of the credit and no mala fide intention was attributable; the order dropping penalty was therefore sustained.

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Issues: (i) whether Cenvat credit on common input services used for more than one entity could be restricted to the extent of the respondent's own premises and allowed proportionately; (ii) whether penalty under Section 11AC was sustainable.

Issue (i): whether Cenvat credit on common input services used for more than one entity could be restricted to the extent of the respondent's own premises and allowed proportionately.

Analysis: The services in question were common services used for the respondent's premises as well as for another entity. The available material showed that the respondent was entitled to credit in respect of the services received and used for its own premises to the relevant extent. The proportion adopted by the appellate authority was not shown to be contrary to the governing credit framework.

Conclusion: The proportionate allowance of Cenvat credit was upheld.

Issue (ii): whether penalty under Section 11AC was sustainable.

Analysis: Since the respondent was found entitled to the major portion of the credit, the element of mala fide intention was not attributable. In those circumstances, the appellate authority's decision to drop the penalty was found to be legally proper.

Conclusion: The penalty under Section 11AC was not sustainable.

Final Conclusion: The order of the appellate authority was affirmed and the Revenue's challenge failed in entirety.

Ratio Decidendi: Where common input services are used for more than one entity, credit may be allowed proportionately to the extent attributable to the recipient's own use, and penalty is not warranted in the absence of mala fide intention.

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