Cenvat credit may be used after forfeiture of fortnightly payment facility for pre-amendment periods, with penalty reduced.

For periods before the 01.06.2006 amendment, Cenvat credit could be used to discharge duty even after forfeiture of the fortnightly duty-payment facility, because the statutory bar had not yet come into force and the Larger Bench view supported such utilisation. The assessee therefore succeeded on the duty-liability issue. On penalty, the duty-payment violation justified imposition in principle, but the circumstances warranted substantial reduction, so the penalty was sustained only partly and cut to Rs. 3,500.

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Issues: (i) Whether the assessee could utilize Cenvat credit for payment of duty for the relevant period after forfeiture of the facility of fortnightly duty payment. (ii) Whether the penalty imposed for the duty-payment violation required interference.

Issue (i): Whether the assessee could utilize Cenvat credit for payment of duty for the relevant period after forfeiture of the facility of fortnightly duty payment.

Analysis: The relevant period was prior to the amendment dated 01.06.2006, when the statutory bar on utilization of Cenvat credit in such circumstances had not yet come into force. The applicable Larger Bench view recognized entitlement to use credit for payment of duty in that situation.

Conclusion: The issue is answered in favour of the assessee.

Issue (ii): Whether the penalty imposed for the duty-payment violation required interference.

Analysis: The violation of the duty-payment rules justified imposition of penalty, but the overall facts and circumstances warranted a substantial reduction in quantum.

Conclusion: The penalty was sustained in principle but reduced to Rs. 3,500/-.

Final Conclusion: The appeal succeeded on the duty-liability question and succeeded only partly on the penalty aspect, resulting in partial relief to the assessee.

Ratio Decidendi: For periods before the statutory amendment barring such payment, Cenvat credit could be used to discharge duty even after forfeiture of the fortnightly payment facility, while penalty could be moderated according to the circumstances.

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