Deemed credit exclusion under Cenvat rules denied where credit was already availed, but reduced penalty relief remained available.

Notification No. 6/2002-CE(NT) did not grant deemed credit to a manufacturer who had already availed credit under Rule 3 of the Cenvat Credit Rules, 2002, because paragraph 4 expressly excludes that benefit in such cases. On the admitted facts, the exclusion applied and the deemed credit demand was sustained. The Tribunal also accepted the request for the statutory reduced-penalty option under Section 11AC(C) of the Central Excise Act, 1944, and directed that the appellant could discharge duty, interest, and 25% penalty within the stipulated period. The result was partial relief only on penalty, not on the credit demand.

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Issues: (i) Whether the appellant was entitled to deemed credit under Notification No. 6/2002-CE(NT) dated 01.03.2002 notwithstanding the availment of credit under Rule 3 of the Cenvat Credit Rules, 2002; (ii) Whether the appellant was entitled to the statutory option of payment of 25% penalty under Section 11AC(C) of the Central Excise Act, 1944.

Issue (i): Whether the appellant was entitled to deemed credit under Notification No. 6/2002-CE(NT) dated 01.03.2002 notwithstanding the availment of credit under Rule 3 of the Cenvat Credit Rules, 2002.

Analysis: Para 4 of Notification No. 6/2002-CE(NT) expressly excludes its application to a manufacturer, other than a composite mill, who avails any credit under Rule 3 of the Cenvat Credit Rules, 2002 in respect of the declared inputs or unprocessed fabrics used in the manufacture of the final products. On the admitted facts, the appellant had availed credit under the Cenvat Credit Rules, and therefore the notification benefit was unavailable. The Tribunal found the cited precedent inapplicable on the facts.

Conclusion: The appellant was not entitled to deemed credit and the demand was upheld.

Issue (ii): Whether the appellant was entitled to the statutory option of payment of 25% penalty under Section 11AC(C) of the Central Excise Act, 1944.

Analysis: The appellant sought the statutory benefit of reduced penalty, stating that the option had not been granted earlier. The Tribunal accepted this limited submission and extended the benefit under the then applicable penal provision, subject to payment of duty, interest, and 25% penalty within the stipulated period.

Conclusion: The appellant was entitled to the option of paying 25% penalty in accordance with Section 11AC(C) of the Central Excise Act, 1944.

Final Conclusion: The demand and recovery of deemed credit were sustained, but the penalty was modified to extend the statutory reduced-penalty option, resulting in only partial relief to the appellant.

Ratio Decidendi: A notification granting deemed credit will not apply where its express exclusion clause withdraws the benefit from a manufacturer availing credit under the Cenvat Credit Rules, and a statutory reduced-penalty option must be afforded where the governing provision so permits.

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