Cenvat credit cross-utilisation held permissible where rules contain no express bar, setting aside tax demand and penalty.

Cenvat credit lawfully taken on inputs, capital goods and input services and kept in a common pool was held capable of cross-utilisation against both excise duty and service tax liabilities, because the rules contained no express prohibition on such use. Rule 3(1) was read as permitting credit on the specified levies, while Rule 7 was treated as governing distribution of credit rather than restricting utilisation. On that basis, the demand confirmed by the lower authorities could not be sustained, and the interest and penalty were also set aside in favour of the assessee.

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Issues: Whether Cenvat credit taken on inputs, capital goods and input services from a common pool could be utilised towards service tax and excise duty liability, and whether the demand and penalty could therefore be sustained.

Analysis: The credit was maintained in a common Cenvat register and utilised against both excise duty on manufactured goods and service tax on output services. The Tribunal followed the earlier view that Rule 3(1) of the Cenvat Credit Rules permits availment of credit on the specified levies and that, in the absence of any prohibitory provision, cross-utilisation of credit on goods and services is not barred. Rule 7 was also noticed as a provision dealing with distribution of credit, but not as an embargo on utilisation. On that footing, the demand confirmed by the lower authorities could not survive.

Conclusion: The credit utilisation was held to be permissible and the demand, interest and penalty were set aside, in favour of the assessee.

Ratio Decidendi: Where Cenvat credit is lawfully taken and maintained in a common pool, cross-utilisation against service tax and excise duty is allowable unless the rules contain an express restriction or prohibition.

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