Retrospective application of excise proviso rejected; Cenvat credit validly used and penalty under Rule 173Q(1) set aside

The proviso inserted into Rule 57AB(1)(b) could not be applied retrospectively to defeat Cenvat credit already taken and utilised in accordance with the main rule. Inputs received in the first fortnight of August 2000 were credited in RG-23A Part-II and used to pay duty on clearances made during that fortnight, so the utilisation was lawful. The Board circular was read only as clarifying that credit could not relate to inputs received beyond the relevant fortnight. Penalty under Rule 173Q(1) was therefore not warranted.

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Issues: Whether the proviso inserted in Rule 57AB(1)(b) of the Central Excise Rules, 1944 by Notification No. 48/2000-C.E. (N.T.) could be applied retrospectively to deny utilisation of Cenvat credit taken on inputs received during the first fortnight of the month, and whether penalty under Rule 173Q(1) was sustainable.

Analysis: The main provision of Rule 57AB(1)(b) permitted utilisation of Cenvat credit for payment of duty on final products. The inputs were received during the first fortnight of August 2000, the credit was entered in RG-23A Part-II on 16-08-2000, and the credit was utilised on 20-08-2000 for duty on clearances made during that fortnight. The proviso relied upon by the Revenue was inserted only on 18-08-2000 and could not be read retrospectively to defeat credit already taken and utilised in accordance with the main rule. The Board circular was held not to extend beyond the clarification that credit could not relate to inputs received beyond the relevant fortnight.

Conclusion: The proviso had no retrospective effect, the credit utilisation was lawful, and the penalty under Rule 173Q(1) was not warranted.

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