Cenvat credit on removal of inputs as such must match credit actually availed; excess reversal and invoice credit are impermissible.

On removal of inputs as such, only the Cenvat credit actually availed on those inputs can be reversed and passed on through the invoice; any amount in excess is not admissible as buyer credit. Applying Rule 3(4) of the Cenvat Credit Rules, 2002, the excess credit was treated as contrary to the statutory limit and recoverable with interest. On penalty, the absence of clear fraud, wilful misstatement, or guilty intent justified treating the contravention as a lesser breach, so the original penalty was reduced substantially.

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Issues: (i) Whether, on removal of inputs "as such", the assessee could reverse an amount higher than the Cenvat credit actually availed and pass on such higher amount to the buyer as credit; (ii) Whether the penalty imposed under Rule 13 of the Cenvat Credit Rules, 2002 required reduction in the facts of the case.

Issue (i): Whether, on removal of inputs "as such", the assessee could reverse an amount higher than the Cenvat credit actually availed and pass on such higher amount to the buyer as credit.

Analysis: Under Rule 3(4) of the Cenvat Credit Rules, 2002, when inputs on which credit has been taken are removed as such, the amount to be paid is equal to the credit availed in respect of those inputs. The invoices issued on clearance were required to conform to that statutory limit. Since the credit actually availed was Rs. 1,49,373/-, the attempt to pass on Rs. 1,94,840/- was contrary to the rule, and the buyer could not lawfully take credit of the excess amount.

Conclusion: The excess credit of Rs. 45,467/- was rightly held to be inadmissible, and its recovery with interest was justified; this issue is decided against the assessee.

Issue (ii): Whether the penalty imposed under Rule 13 of the Cenvat Credit Rules, 2002 required reduction in the facts of the case.

Analysis: Although the assessee had not been entitled to pass on credit beyond the amount actually availed, the record did not conclusively establish fraud, wilful misstatement, or the requisite guilty intent for the harsher penal consequence. In the circumstances, the case was treated as one warranting penalty for a simple breach rather than the full penalty originally imposed.

Conclusion: The penalty was reduced from Rs. 45,467/- to Rs. 10,000/-; this issue is decided partly in favour of the assessee.

Final Conclusion: The demand and recovery of the excess Cenvat credit were upheld, but the penalty was substantially reduced, resulting in dismissal of one appeal and partial allowance of the connected appeal.

Ratio Decidendi: On removal of inputs as such, only the Cenvat credit actually availed in respect of those inputs can be reversed and passed on, and a higher amount cannot be lawfully claimed as credit by the buyer; penalty for such contravention depends on the presence of fraud or wilful intent, failing which only a lesser penalty is justified.

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