Amended Cenvat credit rule: no interest from date of removal where immediate payment is not required, and penalty falls away.

After amendment of Rule 3(4) of the Cenvat Credit Rules, 2002, the provision no longer required payment of the amount attributable to inputs or capital goods removed as such on the date of removal. On that interpretation, interest could not be demanded from the date of clearance merely because payment was made later, and the related penalty also could not survive once the principal demand itself was unsustainable. The CESTAT, Mumbai upheld the order in favour of the assessee and rejected the Revenue's challenge.

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Issues: Whether, after the amendment to Rule 3(4) of the Cenvat Credit Rules, 2002, the assessee was required to pay the amount equal to credit taken on inputs or capital goods removed as such on the date of removal so as to attract interest and penalty for payment made later.

Analysis: The amendment made by Notification No. 13/2003-C.E. (N.T.) deleted the words that linked payment to the date of removal, and the provision no longer prescribed that the amount had to be paid immediately on clearance. On that footing, the demand of interest worked out from the date of clearance was held unsustainable. Since the principal demand itself could not be sustained in the manner proposed, the consequential penalty also did not survive.

Conclusion: The demand of interest and the accompanying penalty were not payable, and the order in favour of the assessee was upheld.

Final Conclusion: The Revenue's challenge failed because the amended credit rule did not mandate payment on the date of removal, and the consequential demand founded on delayed payment was not sustainable.

Ratio Decidendi: Where the governing credit rule, as amended, does not require payment on the date of removal, interest cannot be charged from that date and a penalty based on such unsustainable demand cannot stand.

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