Deemed credit bar under excise notification applies once actual Modvat credit is availed on notified inputs used for notified products.

Deemed credit under Notification No. 29/96-C.E. was unavailable once the assessee had availed actual Modvat credit on light diesel oil used in relation to notified final products, because the bar operated on the fact of availment itself and was not displaced by later utilisation or reversal. The extended limitation period could not be applied for December 1998 to October 1999 in the absence of suppression, so that portion of the demand was time-barred, while the November 1999 demand remained within time. Interest and penalty were held unsustainable because the matter concerned denial of deemed credit under the excise credit scheme.

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Issues: (i) Whether deemed credit under Notification No. 29/96-C.E. was unavailable where the assessee had availed actual Modvat credit on light diesel oil used in the manufacture of notified final products; (ii) whether the demand for part of the period was barred by limitation; and (iii) whether interest and penalty were sustainable.

Issue (i): Whether deemed credit under Notification No. 29/96-C.E. was unavailable where the assessee had availed actual Modvat credit on light diesel oil used in the manufacture of notified final products.

Analysis: Paragraph 4 of the notification barred deemed credit to a manufacturer who availed any credit under a notification issued under Rule 57A(1) of the Central Excise Rules, 1944 in respect of notified inputs used in the manufacture of notified final products. The assessee had taken actual credit on light diesel oil, and the notification did not confine the bar to inputs that remained identifiable in the final product. Fuel was included within the expression "consumables" for purposes of the notification, and the utilisation of the credit for duty payment on another product did not remove the statutory bar once actual credit had been availed on a notified input used in relation to a notified final product.

Conclusion: The deemed credit facility under Notification No. 29/96-C.E. was not available to the assessee.

Issue (ii): Whether the demand for part of the period was barred by limitation.

Analysis: The assessee had disclosed the use of light diesel oil in the earlier declaration filed in 1994, and the later declaration did not supersede the earlier one because the two declarations related to different final products. In the absence of suppression regarding the availment of actual credit, the extended period could not be invoked for the earlier part of the demand. However, the demand for November 1999 was held to be within limitation.

Conclusion: The demand for December 1998 to October 1999 was time-barred, while the demand for November 1999 survived.

Issue (iii): Whether interest and penalty were sustainable.

Analysis: The dispute was one relating to denial of deemed credit under Rule 57I, and the provisions for interest and penalty under Sections 11AB and 11AC of the Central Excise Act, 1944 were held inapplicable in the circumstances of the case.

Conclusion: Levy of interest and imposition of penalty were unsustainable.

Final Conclusion: The appeal succeeded in part: the deemed credit was denied, the major portion of the demand was held time-barred or otherwise unsustainable, only the demand for November 1999 remained for recalculation, and interest and penalty were set aside.

Ratio Decidendi: Where a notification bars deemed credit to a manufacturer who has availed actual credit on notified inputs used in the manufacture of notified final products, the bar operates on the factum of availment of such credit, and subsequent reversal or later utilisation does not alter the legal position; a demand beyond limitation also cannot be sustained in the absence of suppression.

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