Deemed credit lapses on rescission of notification, while penalty falls where the dispute is a bona fide legal interpretation.

Deemed credit availed under Notification No. 29/96-C.E. (N.T.) could not be carried forward after that notification was rescinded, because credit taken under the earlier notification did not survive its withdrawal and the appellant was not covered by the later notification while operating under the compounded levy scheme. The credit demand was therefore upheld. On penalty, the dispute involved interpretation of law and no mala fide conduct was found, so penal consequences were not justified. The penalty was set aside, resulting in partial relief to the appellant.

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Issues: (i) Whether the appellant could carry forward deemed credit availed under Notification No. 29/96-C.E. (N.T.) after that notification was rescinded by Notification No. 24/2000-C.E. (N.T.) and the appellant had been under the compounded levy scheme. (ii) Whether the penalty imposed was sustainable.

Issue (i): Whether the appellant could carry forward deemed credit availed under Notification No. 29/96-C.E. (N.T.) after that notification was rescinded by Notification No. 24/2000-C.E. (N.T.) and the appellant had been under the compounded levy scheme.

Analysis: The deemed credit had been availed only under the earlier notification. Once that notification was rescinded, the credit taken under it could not survive. The appellant was not covered by the later notification relied upon by the Revenue because it was operating under the compounded levy scheme during the relevant period.

Conclusion: The appellant was not entitled to carry forward the balance deemed credit.

Issue (ii): Whether the penalty imposed was sustainable.

Analysis: The dispute turned on interpretation of law and no mala fide was found. In such circumstances, penal consequence was not justified.

Conclusion: The penalty was set aside.

Final Conclusion: The credit demand was upheld, but the penalty was deleted, resulting in a partial relief to the appellant.

Ratio Decidendi: Credit availed under a notification lapses when that notification is rescinded, and penalty is not warranted where the dispute arises from a bona fide interpretation of law without mala fide conduct.

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