Cenvat credit under Rule 6(3): demand needs factual proof of common input services, while penalty fails absent mala fide intent.

Rule 6(3) of the Cenvat Credit Rules applies only where common cenvatable input services are used for both exempted and dutiable output services, so the demand could not be sustained without first verifying the factual claim that no such common services were availed; the main demand was therefore set aside and remanded for fresh factual examination. Penalty was not justified because earlier favourable orders negated mala fide intent, but the uncontested outward transportation demand and corresponding interest were upheld.

---

---

Issues: (i) whether the demand under Rule 6(3) of the Cenvat Credit Rules was sustainable where the appellant claimed that no Cenvat credit had been availed in respect of common input services used for exempted and dutiable output services and the plea required factual verification; and (ii) whether penalty was sustainable and whether the small demand of Rs. 13,985/- towards outward transportation and the consequential interest were liable to be upheld.

Issue (i): whether the demand under Rule 6(3) of the Cenvat Credit Rules was sustainable where the appellant claimed that no Cenvat credit had been availed in respect of common input services used for exempted and dutiable output services and the plea required factual verification.

Analysis: The liability under Rule 6(3) would arise only if common cenvatable input services had been used for both exempted and dutiable services. The appellant's contention was that no such common services were availed, but this factual plea had not been examined by the Original Adjudicating Authority. The appropriate course was therefore to verify the factual position before deciding the applicability of the rule.

Conclusion: The impugned order on this aspect was set aside and the matter was remanded to the Original Adjudicating Authority for fresh decision after factual verification.

Issue (ii): whether penalty was sustainable and whether the small demand of Rs. 13,985/- towards outward transportation and the consequential interest were liable to be upheld.

Analysis: The small demand related to outward transportation and was not contested in view of the settled position against the assessee. On penalty, the existence of earlier favourable orders was treated as negating mala fide intent, and therefore the penal provision was not attracted.

Conclusion: The penalty was set aside, while the demand of Rs. 13,985/- and the corresponding interest were upheld.

Final Conclusion: The appeal succeeded to the extent of removal of penalty and remand of the main demand for factual verification, while the uncontested transportation-related demand and interest were sustained.

Ratio Decidendi: Rule 6(3) of the Cenvat Credit Rules is attracted only where common cenvatable input services are used for both exempted and dutiable outputs, and a penalty cannot be sustained absent mala fide intent.

---