Cenvat credit for settled duty and fresh interest computation: majority upheld later use of credit, but cash adjustment was refused.

Available Cenvat credit may be used to discharge duty crystallised later in settlement proceedings where no express prohibition exists, and the majority treated even credit from another unit as usable in the circumstances, noting departmental knowledge and no timely objection. On interest, the liability had to be recomputed on the settled duty amount, but the cash deposit already made could not be adjusted against interest, which had to be paid in cash subject to verification. A dissent took the view that Cenvat credit is factory-specific and that credit from another unit could not be used.

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Issues: (i) Whether Cenvat credit standing in the applicant's account, including credit in another unit's account, could validly be utilised for payment of duty crystallised in settlement proceedings; (ii) whether the excess duty payment and interest liability had to be worked out afresh, and whether the cash deposit could be adjusted against interest.

Issue (i): Whether Cenvat credit standing in the applicant's account, including credit in another unit's account, could validly be utilised for payment of duty crystallised in settlement proceedings.

Analysis: The majority held that the restriction in the Cenvat scheme was directed to current monthly or quarterly duty payments and did not impose an express bar on utilisation of available credit for differential duty that crystallised later in investigation, adjudication, or settlement. It also held that, in the absence of a clear prohibition, utilisation of available credit was a substantive entitlement under the value added tax framework. On the facts, the department had been aware of the payments and had not taken timely objection. The majority further treated the use of credit from the other unit as permissible, and considered the objection revenue-neutral in the circumstances.

Conclusion: The utilisation of Cenvat credit for payment of the settled duty, including credit from the other unit, was held valid and acceptable in favour of the assessee.

Issue (ii): Whether the excess duty payment and interest liability had to be worked out afresh, and whether the cash deposit could be adjusted against interest.

Analysis: The majority held that, in light of the accepted duty payments, the interest computation had to be redone on the settled duty amount. It rejected the request to adjust the cash amount already paid towards duty against interest liability. The applicant was directed to calculate and pay the full interest in cash, subject to verification by the Revenue.

Conclusion: The interest liability was directed to be recalculated, the request for adjustment of the cash payment was rejected, and the assessee was required to pay the interest in cash.

Final Conclusion: The settlement was finalised by accepting the impugned duty payments as valid, granting credit reversion for the excess duty paid, and requiring fresh payment of interest in cash, thereby substantially succeeding on the credit-utilisation dispute while leaving the interest obligation intact.

Ratio Decidendi: In the absence of an express statutory prohibition, available Cenvat credit may be utilised for discharge of duty liability that crystallises later in settlement proceedings, and belated objection to such utilisation cannot defeat the payment when the department had prior knowledge and no timely challenge was raised.

Concurring Opinion: The majority opinion of H.O. Tewari, Vice-Chairman, and M. Dwivedi, Member, accepted the utilisation of credit and the revenue-neutral plea. K.C. Singh, Member, dissented on the use of credit from another unit, holding that Cenvat credit was factory-specific and that the disputed amount had to be paid by cash or by credit of the same factory.

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