Transitional credit and duty paid on clearance: payment treated as credit reversal, defeating demand, interest and penalties

Duty paid on clearance of finished goods, though not otherwise required on the facts found, was treated as reversal of the credit sought to be denied. Since the goods were cleared after the levy date and duty had been discharged on that clearance, the denial of transitional credit could not sustain the demand. On that basis, the associated interest and penalties also could not survive. The assessee's position was accepted, and consequential relief followed.

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Issues: Whether duty paid on clearance of finished goods, though not otherwise required to be paid, could be treated as reversal of credit so as to allow transitional credit and negate the demand of duty, interest and penalties.

Analysis: The finished goods had been cleared after the levy date and duty was paid on their clearance, even though such duty was not required to be paid on the facts found. In that situation, the duty paid was treated as amounting to reversal of the credit sought to be denied. Applying this principle, the demand based on denial of transitional credit could not survive, and the consequential levy of interest and penalties also could not stand.

Conclusion: The issue was decided in favour of the assessee. The demand, interest and penalties were held unsustainable, and the appeals were allowed with consequential relief.

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