Cenvat credit on sugar cess paid as CVD was allowed, defeating the section 11D demand and related interest liability.

Sugar cess paid as countervailing duty on imported raw sugar was treated as a duty of excise to which the Cenvat Credit Rules, 2004 applied, so the assessee was entitled to avail and utilise Cenvat credit. Following the binding Karnataka High Court view in the assessee's own case, the Tribunal held that section 11D of the Central Excise Act could not be invoked merely because the duty on the exempted output was separately shown, since the levy was discharged through credit and not unlawfully retained. The demand was therefore unsustainable, and the consequential interest under section 11DD also failed.

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Issues: Whether the appellant was entitled to Cenvat credit of sugar cess paid as countervailing duty on imported raw sugar and, on that basis, whether the demand under section 11D of the Central Excise Act, 1944 with interest under section 11DD could survive.

Analysis: Sugar cess under section 3(4) of the Sugar Cess Act, 1982 is a duty of excise, and the Cenvat Credit Rules, 2004 apply to such duty. The issue had already been answered in the appellant's own case by the Karnataka High Court, where it was held that sugar cess paid as CVD on imported raw sugar is eligible for Cenvat credit. Following that binding view, the Tribunal held that the appellant was legally entitled to take and utilize the credit. It further held that section 11D could not be invoked because the duty was not merely collected and retained but was discharged through credit, and the exemption notification did not compel an assessee to forgo credit where the law permitted it.

Conclusion: The demand was unsustainable and the appellant succeeded on the issue of eligibility to Cenvat credit and the consequential section 11D and section 11DD liability.

Ratio Decidendi: Where a duty of excise is paid as CVD on imported inputs and the statute and credit rules apply to that duty, the assessee may lawfully avail Cenvat credit; in such a case, a demand under section 11D does not lie merely because the exempted output duty was also shown separately.

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