Duty on removed capital goods follows the rate on removal date; penalty fails without statutory ingredients.

Rule 3(4) of the Cenvat Credit Rules, 2002 requires duty on removed inputs or capital goods as such to be paid at the rate applicable on the date of removal, not the date of acquisition, because the rule expressly fixes liability by reference to removal. On the penalty issue, Rule 25 of the Central Excise Rules, 2002 read with Section 11AC could not be applied where the record did not show the necessary statutory ingredients or deliberate defiance, and the dispute was only interpretational. The duty-rate issue was decided against the assessee, while the penalty was set aside.

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Issues: (i) Whether old machinery removed after availing Cenvat credit was chargeable to duty at the rate prevailing on the date of acquisition or on the date of removal; (ii) Whether penalty was leviable under the penal provisions invoked in the case.

Issue (i): Whether old machinery removed after availing Cenvat credit was chargeable to duty at the rate prevailing on the date of acquisition or on the date of removal.

Analysis: Rule 3(4) of the Cenvat Credit Rules, 2002 governs removal of inputs or capital goods as such from the factory. The rule fastens liability to pay an amount equal to the duty of excise leviable on such goods at the rate applicable on the date of removal. Since the statutory language is express, the rate cannot be linked to the date of acquisition merely because the goods were originally brought into the factory earlier.

Conclusion: The duty was payable at the rate applicable on the date of removal, not on the date of acquisition, and this issue was decided against the assessee.

Issue (ii): Whether penalty was leviable under the penal provisions invoked in the case.

Analysis: Penalty was imposed by invoking Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. The record did not disclose the essential ingredients required for such penalty, and there was no deliberate defiance of law. The controversy on the meaning of the expression used in the rule created interpretational ambiguity, and in such a situation penalty was held to be unwarranted.

Conclusion: The penalty was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The dispute on valuation stood resolved in favour of the departmental view on duty rate, but the penal demand was deleted, leaving the appeal outcome partly in favour of the assessee.

Ratio Decidendi: Where a fiscal rule expressly provides that duty on goods removed as such is to be paid at the rate applicable on the date of removal, that rate governs; penalty, however, cannot be imposed in the absence of the statutory ingredients and especially where the breach is only interpretational and not a case of deliberate defiance.

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