Cenvat credit recovery on exemption does not attract penalty where only the attributable input credit amount is payable.

When a final product becomes absolutely exempt under a notification issued under Section 5A of the Central Excise Act, 1944, the manufacturer is required under Rule 11(3)(ii) of the Cenvat Credit Rules, 2004 to pay only the amount equivalent to the Cenvat credit attributable to inputs lying in stock. The statutory scheme provided for recovery of that credit amount alone and did not authorise penalty in such circumstances. Accordingly, invocation of Rule 25 of the Central Excise Rules, 2002 and Section 11AC of the Central Excise Act, 1944 was not justified, and penalty was held not leviable.

---

---

Issues: Whether penalty under Rule 25 of the Central Excise Rules, 2002 and Section 11AC of the Central Excise Act, 1944 was leviable when the only consequence of the final product becoming absolutely exempted was recovery of the amount equivalent to Cenvat credit under Rule 11(3)(ii) of the Cenvat Credit Rules, 2004.

Analysis: The applicable legal framework required the manufacturer, on the final product becoming absolutely exempted under a notification issued under Section 5A of the Central Excise Act, 1944, to pay an amount equivalent to the Cenvat credit attributable to inputs lying in stock. The provision contemplated recovery of the credit amount alone and did not provide for imposition of penalty in such circumstances. Since the statutory scheme under the Cenvat Credit Rules, 2004 governed the liability, invocation of Rule 25 of the Central Excise Rules, 2002 and Section 11AC of the Central Excise Act, 1944 was not justified.

Conclusion: Penalty was not leviable, and the appeal filed by the Revenue was rejected.

---