CENVAT credit utilisation protects vested credit rights and bars denial based on an ultra vires rule proviso.

CENVAT credit on capital goods was treated as available even when taken in February 2016, because the scheme does not prescribe any time limit for taking such credit. The proviso to Rule 3(4) of the CENVAT Credit Rules, 2004 was treated as invalid in light of Gujarat High Court authority, on the basis that it was ultra vires and inconsistent with the CENVAT scheme. As a result, legally available credit could be utilised to discharge excise duty liabilities for earlier months, and the demand, interest and penalty raised by relying on that proviso were set aside.

---

---

Issues: Whether the demand, interest and penalty could be sustained on the footing that CENVAT credit availed in February 2016 could not be utilised for discharging excise duty defaults for earlier months under the proviso to sub-rule (4) of Rule 3 of the CENVAT Credit Rules, 2004.

Analysis: The credit taken on capital goods was held to be available notwithstanding that it was availed in February 2016, as there is no time limit for taking such credit. The restriction contained in the proviso to sub-rule (4) of Rule 3 was treated as invalid in light of the Gujarat High Court decision holding that the proviso is ultra vires and contrary to the CENVAT scheme. On that basis, the utilisation of legally available credit for discharge of duty could not be denied.

Conclusion: The demand raised by invoking the proviso to sub-rule (4) of Rule 3 of the CENVAT Credit Rules, 2004 was not sustainable and was set aside in favour of the assessee.

Ratio Decidendi: Legally availed CENVAT credit, once available, cannot be denied utilisation on the basis of a proviso that is contrary to the CENVAT Credit Rules and the settled principle that CENVAT credit is an indefeasible vested right.

---