Cenvat credit for inputs removed as such: penalty not sustainable where statutory payment through credit remained available.

Cenvat credit could be used to discharge duty on inputs removed as such, and the rule governing computation of the amount payable did not alter the character of the payment for credit purposes. Where the assessee had sufficient credit balance and the statutory scheme expressly permitted payment through credit, penalty was not sustainable merely because the liability was worked out as an equivalent amount under the excise rules. The removal and reversal mechanism therefore remained within the duty-payment framework, and the assessee succeeded on the penalty issue.

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Issues: Whether penalty was sustainable when inputs were removed as such on reversal of Cenvat credit and the payment was made on a fortnightly basis under the excise rules.

Analysis: Rule 57AB(1B) permitted utilisation of Cenvat credit for payment of duty on inputs removed as such, and Rule 57AB(1C) only prescribed the manner of computing the amount payable on such removal. The provision did not convert the levy into something other than duty for the purpose of the credit mechanism. Since the assessee had sufficient credit balance and the statutory scheme allowed payment through credit, the basis for treating the conduct as warranting penalty was absent.

Conclusion: Penalty was not justified and the assessee succeeded on this issue.

Ratio Decidendi: Where Cenvat credit is statutorily available for payment on removal of inputs as such, the amount so paid remains within the duty-payment mechanism and penalty cannot be sustained merely because the payment is computed as an equivalent amount under the relevant rule.

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