CENVAT credit and exemption notification compliance split the Members on duty, interest and penalty under Notification No. 8/03-CE.

Eligibility for Notification No. 8/03-CE turned on whether prior availment of CENVAT credit barred exemption after rescission of the earlier notification. One view treated the situation as revenue neutral, noting that the credit was utilised or reversed and that no real duty benefit accrued; on that reasoning, duty and interest were unsustainable, while penalty was not justified due to bona fide mistake. The other view held that the notification had to be strictly complied with and that availment of CENVAT credit violated the express condition of non-availment, making the assessee ineligible for exemption; duty and interest were therefore upheld, while penalty was set aside as bona fide. Because of this difference of opinion, the matter was referred for Third Member consideration.

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Issues: Whether the assessee, having availed CENVAT credit and paid duty at the concessional rate after rescission of the earlier notification, could claim the benefit of Notification No. 8/03-CE on the footing of revenue neutrality and absence of an actual duty benefit; and whether the demand of duty, interest and penalty was sustainable.

Issue: Whether the benefit of Notification No. 8/03-CE could be extended despite availment of CENVAT credit.

Analysis: One view held that Notification No. 8/03-CE was the only operative exemption after rescission of Notification No. 9/03-CE, that the assessee had not derived any real benefit because the credit taken had been utilized or reversed, and that the situation was revenue neutral. On that reasoning, the demand and interest were held unsustainable, though penalty was found unjustified in view of bona fide mistake.

Conclusion: The benefit of Notification No. 8/03-CE was held extendable and the appeal was allowed with consequential relief.

Issue: Whether non-fulfilment of the condition in Notification No. 8/03-CE requiring non-availment of credit disentitled the assessee from exemption.

Analysis: The other view held that the exemption notification had to be strictly complied with, that availment of CENVAT credit under Rule 3 and Rule 11 of the CENVAT Credit Rules, 2002 violated the express condition of the notification, and that the assessee was therefore not entitled to the exemption. On that basis, duty and interest were upheld, while penalty was set aside as the default was considered bona fide.

Conclusion: The assessee was held not entitled to Notification No. 8/03-CE and the demand of duty and interest was upheld.

Final Conclusion: There being a difference of opinion between the Members, the matter was required to be placed before the President for reference to a Third Member on the stated questions.

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