Strict compliance with exemption notification and Cenvat credit procedure remained disputed, with revenue neutrality affecting interest and penalty.

Non-availment of Cenvat credit before claiming refund under Notification No. 56/2002-CE was treated as a compliance issue under the prescribed exemption mechanism, with one view holding that self-credit and refund were contrary to the notification but that revenue neutrality and bona fide mistake defeated interest and penalty. The contrary view insisted on strict compliance with the notification and held that taking self-credit beyond the permitted mechanism made the refund claim unsustainable, while still accepting that bona fide error justified deletion of interest and penalty. The Members disagreed on the refund demand and the impact of revenue neutrality, and the matter was referred to a third Member without a final conclusive holding.

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Issues: Whether, in the facts of the case, non-availment of Cenvat credit before claiming refund under Notification No. 56/2002-CE entitled the assessee to refund, and whether interest and penalty were sustainable.

Analysis: One member held that the assessee's failure to avail the available Cenvat credit rendered the self-credit and consequent refund claim contrary to the notification, but that the case was revenue neutral and the assessee had acted under a bona fide mistake, so interest and penalty were not warranted. The other member held that the exemption notification had to be complied with strictly, and that the assessee had exceeded the permissible exemption by taking self-credit contrary to the prescribed mechanism, though the bona fide nature of the error justified deletion of interest and penalty.

Conclusion: The Members differed on the sustainability of the refund demand and the effect of revenue neutrality, and the matter was referred for decision by a third member; no final conclusive holding was recorded in the order.

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