Common credit reversal under Rule 6(3A) cannot override disclosed records, and extended limitation fails without suppression.

Rule 6(3A) permits reversal only of common credit attributable to exempted output and cannot be used to deny admissible credit relatable to dutiable clearances; proportionate reversal based on disclosed turnover was therefore treated as the correct approach. Adjudication must remain within the allegations in the Show Cause Notice, and liability cannot be confirmed on a broader or alternative basis not specifically pleaded. In a dispute arising from disclosed records and interpretation of the formula, the extended period of limitation was held unavailable because there was no fraud, suppression, or intent to evade duty. Penalties were also found unsustainable for want of the requisite mens rea.

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Issues: (i) Whether the appellant correctly applied Rule 6(3A) while computing proportionate reversal, including treatment of common credit and inclusion of electricity and trading turnover. (ii) Whether the impugned orders travelled beyond the scope of the Show Cause Notices. (iii) Whether the extended period of limitation was invocable. (iv) Whether the penalties were sustainable.

Issue (i): Whether the appellant correctly applied Rule 6(3A) while computing proportionate reversal, including treatment of common credit and inclusion of electricity and trading turnover.

Analysis: Rule 6 requires reversal only of credit attributable to exempted output and does not permit loading of credit exclusively relatable to dutiable clearances into the apportionment formula. Rule 6(3A) is a quantification mechanism for common credit and cannot be used to deny otherwise admissible credit. The appellant had reversed proportionate common credit, and the value of electricity and trading turnover was relevant only for the computation under the formula. The demand based on inclusion of exclusive credit and substitution of the appellant's chosen option was inconsistent with the statutory scheme.

Conclusion: The appellant correctly applied Rule 6(3A), and the demand on this ground was unsustainable.

Issue (ii): Whether the impugned orders travelled beyond the scope of the Show Cause Notices.

Analysis: Adjudication is confined to the allegations made in the Show Cause Notice. The notices alleged short reversal under Rule 6(3A), but the orders proceeded on a broader footing by reworking liability on an alternative basis and by introducing grounds not specifically alleged. A confirmation on a foundation not put to notice enlarges the case beyond the notice.

Conclusion: The impugned orders travelled beyond the Show Cause Notices to the extent indicated and were unsustainable.

Issue (iii): Whether the extended period of limitation was invocable.

Analysis: The dispute arose from disclosed records and audit scrutiny and turned on interpretation of the Rule 6(3A) formula. The facts were reflected in returns and statutory records, and there was no material showing fraud, collusion, wilful misstatement, suppression of facts, or intent to evade duty. In a purely interpretational dispute with full disclosure, the extended period cannot be invoked.

Conclusion: The extended period of limitation was not invocable.

Issue (iv): Whether the penalties were sustainable.

Analysis: Penalty under Rule 15(2) read with Section 11AC requires the element of fraud, wilful misstatement, suppression, or analogous mens rea. Since the dispute was interpretational, based on disclosed records, and the demand itself was not sustainable, the preconditions for penalty were absent.

Conclusion: The penalties were not sustainable.

Final Conclusion: The orders confirming duty, interest, and penalties were set aside and the appeals succeeded with consequential relief.

Ratio Decidendi: Rule 6(3A) permits reversal only of common credit attributable to exempted output, adjudication cannot exceed the allegations in the Show Cause Notice, and extended limitation and penalty are unavailable in the absence of suppression or other culpable conduct in a disclosed interpretational dispute.

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