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Issues: (i) whether Cenvat credit that had lapsed on 01.04.2008 could be used in June 2008 for duty liability said to have arisen on clearances made in March 2008; (ii) whether penalty was sustainable against the paper division; and (iii) whether the steel division was entitled to retain credit taken on duty paid by the paper division and whether penalty could be imposed on it.
Issue (i): whether Cenvat credit that had lapsed on 01.04.2008 could be used in June 2008 for duty liability said to have arisen on clearances made in March 2008.
Analysis: On the transition to exemption, the balance credit lying in the account on 31.03.2008 stood lapsed and ceased to be available for utilisation. Even accepting the claim that the duty-related clearances related to March 2008, the duty was not discharged in that month. The subsequent payment in June 2008 could not be made out of credit that had already lapsed. The order also noticed circumstances casting doubt on the alleged March clearance, including use of a new invoice series and non-reflection in the return. The statutory consequence of default under the payment rules also supported denial of utilisation of credit after the due date.
Conclusion: The paper division was not entitled to utilise the lapsed Cenvat credit in June 2008, and the duty demand with interest was sustainable against it.
Issue (ii): whether penalty was sustainable against the paper division.
Analysis: Although the demand was upheld, the material on record did not conclusively establish that the clearance was actually made in June 2008 with a deliberate intent to pass on lapsed credit to the sister concern. In that situation, the adverse inference necessary for penalty was not fully made out, and benefit of doubt was extended on the penalty aspect.
Conclusion: Penalty on the paper division was set aside.
Issue (iii): whether the steel division was entitled to retain credit taken on duty paid by the paper division and whether penalty could be imposed on it.
Analysis: Once the paper division was held barred from discharging the duty through lapsed credit, the corresponding credit availed by the steel division could not be sustained on that basis. However, there was no sufficient basis to show that the steel division knowingly participated in the irregular utilisation of lapsed credit. In the absence of such material, penalty on the steel division was also unwarranted.
Conclusion: The credit taken by the steel division was liable to be reversed, but the penalty imposed on it was set aside.
Final Conclusion: The demand and interest against the paper division were upheld, while penalties on both divisions were set aside. The credit availed by the steel division could not be retained on the strength of duty paid from lapsed credit.
Ratio Decidendi: Credit that has lapsed under the transitional provisions cannot be utilised after the lapse date for payment of duty, even if the underlying liability is said to relate to a prior period; penalty requires a conclusive finding of the requisite culpable conduct.
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