Retrospective substituted notification governs deemed credit on stock inputs, while penalty fails where dispute is only interpretive.

A substituted customs/excise notification correcting an omission in the original table was treated as operative from the date of the original notification, so transitional deemed credit on inputs in stock had to be recalculated on that retrospective basis. The text also notes that where the dispute concerned only the interpretation and scope of the deemed credit notification, without any independent finding of suppression or contumacious conduct, penalty was not justified and was set aside.

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Issues: (i) Whether Notification No. 47/2003-C.E. (N.T.) substituting the table in Notification No. 35/2003-C.E. (N.T.) operated retrospectively so as to govern the appellants' deemed credit on inputs lying in stock. (ii) Whether penalty was sustainable where the dispute turned on interpretation of the notification governing availing of deemed credit.

Issue (i): Whether Notification No. 47/2003-C.E. (N.T.) substituting the table in Notification No. 35/2003-C.E. (N.T.) operated retrospectively so as to govern the appellants' deemed credit on inputs lying in stock.

Analysis: Rule 9A of the Cenvat Credit Rules, 2002 granted transitional credit on inputs lying in stock, work-in-progress, or contained in finished goods, subject to the manner notified by the Central Government. Notification No. 35/2003-C.E. (N.T.) was issued to prescribe the credit calculation, but it omitted garment manufacturers from the table. Notification No. 47/2003-C.E. (N.T.) substituted the relevant entry and was treated as a correction of the earlier omission. A substituted provision is taken to replace the earlier one, and where the amendment is clearly intended to rectify a mistake, it operates from the date of the original notification.

Conclusion: The substituted table in Notification No. 47/2003-C.E. (N.T.) applied retrospectively from 10-4-2003, and the credit had to be recalculated accordingly.

Issue (ii): Whether penalty was sustainable where the dispute turned on interpretation of the notification governing availing of deemed credit.

Analysis: The dispute concerned the proper scope and interpretation of the transitional credit notification and the effect of its later substitution. The liability arose from a debatable construction of the notification rather than from any independent finding of deliberate suppression or contumacious conduct.

Conclusion: Penalty was not sustainable and was set aside.

Final Conclusion: The demand on excess deemed credit was sustained on the basis of the substituted notification, but the penalty was deleted.

Ratio Decidendi: A substituted notification issued to correct an omission or mistake in an earlier notification takes effect from the date of the original notification, and penalty is not justified where the dispute is confined to interpretation of the notification.

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