Revenue-neutral credit dispute: deemed credit remained available where equivalent duty was paid and credit was not used for the disputed final product.

Credit availed on inputs used in intermediate processed fabric was treated as revenue neutral because it was exactly equivalent to the excise duty paid by not claiming exemption. The credit was used to discharge duty on bleached fabrics falling under Chapter 52, a specified final product for deemed credit purposes, and was not used for the final product falling under Chapter 59. The later classification of the final product in a different chapter did not, by itself, affect availability of deemed credit or sustain the demand and penalty. The appeal was allowed.

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Issues: Whether the demand and penalty were sustainable when the credit availed on inputs used in intermediate processed fabric was equivalent to the duty paid by not availing the exemption, and whether the fact that the final product fell under a different chapter affected the availability of deemed credit.

Analysis: The credit taken by the appellant was used to discharge duty on bleached fabrics falling under Chapter 52, which was one of the specified final products for the purpose of deemed credit under Notification No. 29/96. The disputed credit was not utilized for payment of duty on the final product falling under Chapter 59. The principle applied was that where wrongly availed credit is exactly equivalent to the excise duty paid by foregoing exemption, the situation is revenue neutral and the demand cannot be sustained. The later classification of the final product, by itself, did not alter the position because the credit had not been used for that product.

Conclusion: The demand and penalty were not sustainable, and the appeal was allowed in favour of the assessee.

Ratio Decidendi: Where credit wrongly availed is offset by equivalent duty paid and the credit is not used to discharge duty on the disputed final product, the matter is revenue neutral and the demand cannot be sustained.

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