Cenvat credit on scrap material and pre-2007 penalty under Rule 26(2) were set aside on the facts.

Cenvat credit could not be denied merely because invoices described the inputs differently when the evidence showed receipt and use of the material in the factory as damaged aluminium profiles or scrap capable of being melted and used in manufacture. On those facts, the credit disallowance was unsustainable and was set aside. Penalties under Rule 26(2) of the Central Excise Rules, 2002 could not be imposed for alleged conduct occurring between March 2006 and October 2006, because that provision was treated as applicable only from 1 March 2007. The penalty orders were therefore also set aside.

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Issues: (i) Whether Cenvat credit could be denied on the ground that the goods described in the invoices were not received as such and were treated as Aluminum waste and scrap; (ii) Whether penalties could be imposed under Rule 26(2) of the Central Excise Rules, 2002 for alleged violations pertaining to the period prior to 1.3.2007.

Issue (i): Whether Cenvat credit could be denied on the ground that the goods described in the invoices were not received as such and were treated as Aluminum waste and scrap.

Analysis: The invoices did not establish that the goods were new Aluminum Extruded Profiles, and the surrounding evidence showed that the material could be understood as damaged profiles or scrap. The use of such material in the factory was not disputed, and it was technically possible to melt the material and use it in manufacture. On the facts, the credit could not be disallowed merely because of the description in the invoices when receipt and consumption of the material were accepted.

Conclusion: The denial of Cenvat credit was unsustainable and was set aside in favour of the assessee.

Issue (ii): Whether penalties could be imposed under Rule 26(2) of the Central Excise Rules, 2002 for alleged violations pertaining to the period prior to 1.3.2007.

Analysis: The alleged conduct related to March 2006 to October 2006. The governing view applied was that Rule 26(2) could be invoked only for the period after 1.3.2007, and therefore the penalty provision was not available for the impugned period.

Conclusion: The penalties imposed on the other appellants were not sustainable and were set aside in favour of the appellants.

Final Conclusion: The common order was overturned, the Cenvat credit demand was deleted, and all penalties were quashed, resulting in allowance of all connected appeals.

Ratio Decidendi: Cenvat credit cannot be denied where the evidence shows receipt and use of the material as scrap or damaged goods, and penalty under Rule 26(2) of the Central Excise Rules, 2002 cannot be imposed for conduct occurring before its operative date.

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