Deemed credit balance survives rescission where no prohibition exists, making transfer into the Cenvat account valid.

A credit balance validly accumulated under a deemed credit scheme did not lose its character merely because the scheme was later rescinded. The assessee had an existing deemed credit balance, repaid an erroneous refund in cash, and then re-entered the same amount in the Cenvat credit account. The Tribunal held that deemed credit was only a mode of availing credit on a presumptive basis, and the later Cenvat regime contained no specific prohibition against carrying forward that balance. Procedural requirements for fresh credits were not decisive for credit already standing in the earlier register. Demand, interest, and penalty were therefore not sustainable.

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Issues: Whether the deemed credit balance, after the scheme stood rescinded and the refunded amount was repaid, could be taken in the Cenvat credit account; and whether the credit so taken was liable to lapse or attract demand and penalty.

Analysis: The record showed that the assessee had a pre-existing deemed credit balance under the earlier scheme, had initially sought refund only because the balance could not be utilised, and later, after the refund was found erroneous and repaid in cash, re-entered the same amount in the Cenvat credit account. The governing distinction drawn by Revenue between deemed credit and regular credit was rejected. The reasoning accepted that deemed credit was only a mode of availing credit on a presumptive basis and did not alter the substantive character of the credit itself. The subsequent Cenvat regime did not contain any prohibition against carrying forward or transferring such balance merely because the earlier deemed credit scheme had been rescinded. The Tribunal also accepted the view that the procedural requirements applicable to fresh credits under the later rules were not decisive for a balance already lying in the credit register under the earlier scheme.

Conclusion: The deemed credit balance did not lapse on rescission of the scheme, and its transfer to the Cenvat credit account was valid. Demand, interest, and penalty were not sustainable.

Final Conclusion: The Revenue's challenge failed, and the assessee's entitlement to retain the transferred credit was upheld.

Ratio Decidendi: A credit balance legitimately accumulated under a deemed credit scheme does not lose its character or lapse merely because the scheme is later rescinded, and in the absence of a specific prohibition, such balance may be carried into the succeeding credit regime.

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