Uncorroborated penalty demands and Rule 6(3) claims on exempted by-products cannot survive against settled precedent.

Penalties were held unsustainable where the Revenue relied on a single statement contradicted by another officer's statement and no independent corroboration showed wrongful credit availment or clandestine removal; the corresponding duty confirmations remained undisturbed because the amounts had already been reversed and interest paid. Demand on bagasse and press mud cleared as exempted goods under Rule 6(3) of the Cenvat Credit Rules was also set aside, the issue being governed by binding Supreme Court precedent treating such demand as unsustainable. The connected penalties on that issue fell with the demand.

---

---

Issues: (i) Whether penalties were sustainable where the duty demand and credit reversal were accepted, but the Revenue relied only on a statement contradicted by another statement and unsupported by corroborative evidence; (ii) Whether the demand raised on sale of bagasse and press mud cleared as exempted goods was sustainable under Rule 6(3) of the Cenvat Credit Rules.

Issue (i): Whether penalties were sustainable where the duty demand and credit reversal were accepted, but the Revenue relied only on a statement contradicted by another statement and unsupported by corroborative evidence.

Analysis: The demand relating to inadmissible credit and shortage of sugar was founded only on one statement, which was met by a contrary statement from another responsible officer. No independent corroborative evidence established wrongful availment of credit or clandestine removal. Since the appellant had already reversed the amounts and paid interest, the substantive confirmation of demand was not disturbed, but the punitive element required separate consideration.

Conclusion: Penalties on these counts were set aside, while the corresponding duty confirmation was upheld.

Issue (ii): Whether the demand raised on sale of bagasse and press mud cleared as exempted goods was sustainable under Rule 6(3) of the Cenvat Credit Rules.

Analysis: The principal demand related to bagasse and press mud cleared as exempted goods under Rule 6(3). The issue was treated as no longer res integra and was governed by the Supreme Court's decision holding that such demand could not be sustained in the manner adopted by the Revenue. Applying that binding view, the demand and the connected penalties could not stand.

Conclusion: The demand on bagasse and press mud and the related penalties were set aside.

Final Conclusion: The appeal succeeded substantially in respect of the major demand and the penalties, though the uncontested duty confirmations were left undisturbed.

Ratio Decidendi: A penalty cannot be sustained on uncorroborated allegations when the material evidence is conflicting, and demand under Rule 6(3) cannot survive where the controlling precedent treats the issue as settled against the Revenue.

---