CENVAT credit on input mercury triggered duty on later removal, with interest and penalty upheld on plant closure sale.

Where input mercury on which CENVAT credit had been taken was later sold on closure of the plant, the Court treated the clearance as removal of inputs as such under the CENVAT Credit Rules and held that duty liability arose on removal, with corresponding interest. It further upheld the equal penalty, noting that the sale was made without invoice and no mitigating circumstances justified interference with the statutory penalty. The demand for duty, interest and penalty was therefore sustained against the assessee.

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Issues: (i) Whether mercury sold on closure of the plant, after CENVAT credit had been taken on the purchased mercury, attracted excise duty and consequent interest and penalty; (ii) whether the equal penalty imposed under the excise provisions called for interference.

Issue (i): Whether mercury sold on closure of the plant, after CENVAT credit had been taken on the purchased mercury, attracted excise duty and consequent interest and penalty.

Analysis: The mercury used in the electrolysis process remained mercury in substance and character, though with some impurities, and the sale was of the same material after closure of the mercury cell plant. The record showed that CENVAT credit had been taken on the input mercury, and Rule 3(4) of the CENVAT Credit Rules, 2001 required reversal of credit or payment of duty when inputs taken on credit are removed as such from the factory. The Court applied the settled principle that, where credited inputs are cleared without duty, the duty liability is attracted on removal, together with interest.

Conclusion: The levy of duty and interest was upheld and is against the assessee.

Issue (ii): Whether the equal penalty imposed under the excise provisions called for interference.

Analysis: The sale was effected without invoice and in the backdrop of clearance of a large quantity of mercury after closure of the plant. No mitigating circumstances were shown to justify reduction of penalty, and the Court found no basis to interfere with the quantum imposed under the statutory penalty provision.

Conclusion: The penalty was upheld and is against the assessee.

Final Conclusion: The demand of duty, interest and penalty was sustained, and the appeal failed.

Ratio Decidendi: Where credit has been taken on input goods and those goods are later cleared from the factory without change in their essential identity, duty liability arises on removal and the corresponding credit must be reversed or duty paid under the CENVAT scheme.

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