Cenvat reversal and nil work-in-progress stock defeat duty demand and penalty on presumed credit values.

Where an assessee opts out of the Cenvat scheme to claim SSI exemption, duty demand on alleged work-in-progress must rest on actual stock on the relevant date. The records showed nil in-process stock on 31-3-2004, while the show cause notice relied on a presumed value. Once credit is reversed on exiting the scheme, no further Modvat/Cenvat utilisation remains available and any balance lapses. On these facts, a demand based on non-existent work-in-progress credit could not be sustained, and the penalty was also not warranted.

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Issues: Whether duty demand and penalty were sustainable on the alleged work-in-progress stock while the assessee opted out of the Cenvat scheme to avail SSI exemption, and whether credit reversal was required when the in-process stock on the relevant date was nil.

Analysis: The assessee had opted out of the Cenvat scheme for SSI exemption, and the dispute turned on the value of work-in-progress on the relevant date. On examination of the records, the in-process stock was found to be nil as on 31-3-2004, whereas the show cause notice proceeded on a presumed value. In any event, once credit is reversed as required when opting out of the scheme, there is no scope for utilising Modvat/Cenvat credit and the balance would lapse. On these facts, a demand equal to credit allegedly contained in non-existent in-process material could not be sustained.

Conclusion: The demand of duty and the penalty were not warranted and were set aside in favour of the assessee.

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