Presumed CENVAT credit utilisation cannot sustain duty demand, with related interest and penalty also falling away.

CENVAT credit liability could not be sustained merely on a presumption of post-omission utilisation of balance credit after Rule 12B of the Central Excise Rules, 2002 ceased to operate from 9 July 2004. The record showed no actual utilisation of credit after that date, so the duty demand lacked evidentiary support. As the basic demand itself was unsupported, the consequential levy of interest and penalty also could not survive. The demand, interest and penalty were therefore set aside.

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Issues: Whether duty demand, interest and penalty could be sustained on the footing that CENVAT credit was presumed to have been utilised after deletion of Rule 12B of the Central Excise Rules, 2002.

Analysis: Rule 12B stood omitted with effect from 9 July 2004, and the entitlement to maintain and utilise credit under the earlier registration framework ceased thereafter. The record did not show any actual utilisation of credit after that date. The demand was founded on a presumption that credit lying in balance had been used without evidence of such utilisation. A liability to duty cannot be created merely on presumption. Once the basic demand was unsupported, the consequential levy of interest and penalty also could not survive.

Conclusion: The demand, interest and penalty were not sustainable and were set aside.

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