Premature Cenvat credit utilisation attracted interest only, with no denial of credit or penalty where the dispute was interpretative.

Cenvat credit of additional duty of excise was permitted only from the effective date of 01-03-2003, so utilisation on 19-02-2003 was premature. Because the assessee had sufficient credit balance and the wrong use was only an advance utilisation, denial of the entire credit was not justified. The legal consequence was limited to interest for the period of premature utilisation under Section 11AB, and penalty was not warranted since the dispute depended on interpretation of the credit provision. The entire credit denial and penalties were set aside.

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Issues: Whether Cenvat credit of additional duty of excise paid under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 could be utilised before 01-03-2003, and if such utilisation was premature, whether the entire credit was liable to be denied and penalty imposed or only interest was payable.

Analysis: The Explanation to Rule 3(6) of the Cenvat Credit Rules, 2002 permitted utilisation of credit of additional duty of excise paid on or after 01-04-2000. However, the amendment made by Notification No. 13/2003-C.E. (N.T.) and given retrospective effect by Section 88 of the Finance Act, 2004 operated only from 01-03-2003. The credit used on 19-02-2003 was therefore an advance utilisation before the effective date. Since the appellant had sufficient balance in the credit account, the wrong utilisation did not justify denial of the entire credit. The consequence was limited to interest for the period of premature utilisation. As the controversy turned on interpretation of law, penalty was not warranted.

Conclusion: The appellant was liable only to pay interest on the amount of credit prematurely utilised for 10 days under Section 11AB of the Central Excise Act, 1944. Denial of the entire credit and the penalties imposed were set aside.

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