Recovery of 8% on exempted goods was not permissible absent an express mechanism; corresponding credit alone could be pursued.

Rule 57CC of the Central Excise Rules, 1944 did not provide an express machinery to recover an amount quantified at 8% of the price of exempted coke cleared without duty. The operative remedy was recovery of the corresponding Modvat credit, if wrongly taken on inputs used in exempted final products, rather than direct recovery of the 8% amount as such. For the same reason, a penalty founded solely on that unsustainable demand could not be maintained. The stated position is that the department may proceed in accordance with law for recovery of the corresponding credit, where otherwise permissible.

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Issues: Whether the amount equal to 8% of the price of exempted coke cleared without payment of duty was recoverable under Rule 57CC of the Central Excise Rules, 1944, and whether penalty could be sustained for the alleged irregular availment of Modvat credit on inputs used in the manufacture of exempted final products.

Analysis: The recovery sought was not treated as duty or as Modvat credit simpliciter, and the governing rules did not provide a machinery for direct recovery of the amount quantified at 8% of the price of exempted goods. The decision also relied on the then prevailing departmental circular and the view that, where the manufacturer does not follow the prescribed alternative of maintaining separate accounts or otherwise complies with the scheme, the proper course is to proceed against the corresponding credit taken on inputs used in exempted goods, not to recover the 8% amount as such. In the absence of a legally sustainable basis for the demand, the penalty founded on the same demand could not survive.

Conclusion: The demand of 8% of the price of the exempted coke was not recoverable as made, and the penalty was also unsustainable.

Final Conclusion: The impugned order was set aside and the appeal was allowed, leaving the department at liberty to proceed in accordance with law for recovery of the corresponding credit, if otherwise permissible.

Ratio Decidendi: In the absence of an express recovery mechanism in the applicable excise rules, an amount quantified as 8% of the price of exempted goods cannot be recovered as such, though recovery of wrongly availed corresponding credit may be pursued in accordance with law.

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