CENVAT credit misuse after notification sustained duty demand, but penalty fell where the mistake was bona fide and no evasion intent existed.

Utilisation of CENVAT credit after the relevant notification was treated as impermissible, and the duty demand with interest was maintained in line with the binding High Court view. Penalty, however, was held unsustainable because the credit was used under a bona fide impression that Education Cess and Higher Education Cess credit remained available, and the record did not show any intention to evade duty. The operative distinction was between the maintainability of the duty demand and the absence of mens rea for penal action.

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Issues: (i) Whether the duty demand was liable to be confirmed on the assessee's utilisation of CENVAT credit towards payment of excise duty after the relevant notification. (ii) Whether penalty was sustainable when the utilisation of credit was claimed to be a bona fide mistake without intention to evade duty.

Issue (i): Whether the duty demand was liable to be confirmed on the assessee's utilisation of CENVAT credit towards payment of excise duty after the relevant notification.

Analysis: The assessee did not press the challenge on merits and accepted the legal position in view of the binding High Court decision relied on by the Tribunal. On that basis, the demand of duty and the accompanying interest were maintained.

Conclusion: The duty demand was confirmed against the assessee.

Issue (ii): Whether penalty was sustainable when the utilisation of credit was claimed to be a bona fide mistake without intention to evade duty.

Analysis: The Tribunal accepted that the credit had been utilised under a bona fide impression that Education Cess and Higher Education Cess credit could be used after the relevant notification. In the absence of any intention to evade duty, the penal consequence was held unwarranted.

Conclusion: The penalty was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded only in relation to penalty, while the demand of duty along with interest was sustained.

Ratio Decidendi: Penalty is not sustainable where the assessee's incorrect utilisation of credit arises from a bona fide mistake and the record does not show any intention to evade duty, even though the underlying duty demand is otherwise maintainable.

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