Transitional deemed credit is confined to specified finished goods; excess credit was recoverable and no penalty applied.

Transitional deemed Cenvat credit under the textile notification was confined to inputs lying in stock, inputs in process, or inputs contained in finished goods only where those finished goods fell within the specified covered categories. Because the finished apparel goods were not among the notified goods, credit could not be extended by analogy, and excess credit was recoverable. The larger-bench precedent cited by the assessee was distinguished as arising under a different notification and statutory setting. Penal consequences were not warranted on this interpretative dispute, so no penalty was leviable.

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Issues: Whether deemed Cenvat credit was admissible on inputs contained in finished goods lying in stock when the finished goods were not among the specified goods under the transitional notification, and whether any penalty was leviable.

Analysis: The notification governing transitional credit for textiles and textile articles extended deemed credit only in respect of inputs lying in stock, inputs in process, or inputs contained in finished goods lying in stock, but only to the extent and in the manner specified for the notified categories. The finished goods in question were articles of apparel falling under Chapter 62 and were not among the specified finished goods covered by the notification. Since the notification made the availability of credit depend not merely on the nature of the inputs but also on the finished goods in which those inputs were contained, credit could not be claimed beyond the amount specifically admissible under the notification. The larger-bench precedent relied upon by the assessee was distinguished because it concerned a different notification and a different statutory setting.

Conclusion: The deemed credit was restricted to the amount admissible under the notification, and the excess credit was recoverable from the assessee.

Analysis: As the dispute turned on interpretation of the notification, penal consequences were not justified.

Conclusion: No penalty was leviable.

Final Conclusion: The credit demand was sustained to the extent of excess availed, while the penalty was set aside, resulting in only partial relief to the assessee.

Ratio Decidendi: Transitional deemed credit under a notification is allowable only within the precise class of inputs and finished goods expressly covered by the notification, and cannot be extended by analogy to non-specified finished goods.

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