Deemed credit under excise notification cannot be denied on mere presumption of unauthorised removal; penalty also falls.

Notification No. 29/96-C.E. (N.T.) could not be denied merely because finished goods were unaccounted and were presumed to have been removed without duty payment; the proviso applied only where the statutory conditions of non-levy, short-levy, short-payment or erroneous refund were actually satisfied. As the goods had not been removed and the factual basis for denial was absent, deemed credit remained admissible. For the same reason, penalty under Rule 173Q could not stand once the credit benefit itself was not lawfully denied. The Revenue's challenge failed and the penalty was deleted.

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Issues: (i) Whether the benefit of Notification No. 29/96-C.E. (N.T.) could be denied on the basis that finished goods found unaccounted were presumed to have been removed without payment of duty; (ii) Whether penalty was sustainable under Rule 173Q of the Central Excise Rules when the denial of deemed credit itself was not legally attracted.

Issue (i): Whether the benefit of Notification No. 29/96-C.E. (N.T.) could be denied on the basis that finished goods found unaccounted were presumed to have been removed without payment of duty.

Analysis: The notification excluded its application only where duty on the final products had not been levied or paid, or had been short-levied, short-paid, or erroneously refunded for the specified reasons. The goods had not yet been removed, and therefore the necessary factual basis for invoking the proviso was absent. A mere presumption of future removal without duty could not displace the actual statutory conditions for denial of the credit benefit.

Conclusion: The denial of the benefit of Notification No. 29/96-C.E. (N.T.) was not justified, and the Revenue's challenge failed.

Issue (ii): Whether penalty was sustainable under Rule 173Q of the Central Excise Rules when the denial of deemed credit itself was not legally attracted.

Analysis: Once the benefit of the notification could not be denied, the assessee's availment of deemed credit could not be treated as a contravention warranting penalty. The reasons adopted for sustaining the penalty were insufficient to support penal action under Rule 173Q.

Conclusion: The penalty was not sustainable and was set aside, and the assessee's appeal succeeded.

Final Conclusion: The order confirmed the admissibility of deemed credit while deleting the penalty, resulting in the rejection of the Revenue's challenge and relief to the assessee on the penalty issue.

Ratio Decidendi: A benefit-denial proviso in a fiscal notification can be invoked only when its express statutory preconditions are satisfied, and penalty cannot stand where the underlying denial of credit or exemption is itself unsustainable.

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