Inadmissible CENVAT Credit Use: Duty Confirmed in Cash, while penalty was reduced on the facts

Inadmissible utilisation of CENVAT credit for duty payment was treated as clearance without payment of appropriate duty, because the credit was not available on the relevant dates and later adjustment did not cure the defect. The Tribunal held that the duty demand was recoverable in cash and upheld the demand. On penalty, the wrongful debit attracted liability, but the full penalty was found excessive on the facts. The penalty was therefore sustained in principle but reduced to Rs. one lakh, giving partial relief while confirming the underlying duty liability.

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Issues: (i) whether duty demanded on account of utilisation of CENVAT credit not available on the relevant dates was recoverable in cash; and (ii) whether penalty imposed for such wrongful debit was sustainable in full or liable to be reduced.

Issue (i): Whether duty demanded on account of utilisation of CENVAT credit not available on the relevant dates was recoverable in cash.

Analysis: The wrongful debit of duty from the CENVAT account during the relevant period was admitted. The credit so utilised was not available for discharge of duty on the dates of payment, and the subsequent adjustments did not alter the character of the liability. The amendment restricting use of CENVAT credit had already come into force, and the overdrawal occurred after the relevant change in law. On these facts, the goods were treated as having been cleared without payment of appropriate duty, and the demand was upheld.

Conclusion: The duty demand was upheld and was payable in cash.

Issue (ii): Whether penalty imposed for such wrongful debit was sustainable in full or liable to be reduced.

Analysis: Since the goods were cleared by wrongly debiting CENVAT credit, penalty was attracted. However, the circumstances did not justify imposition of an equivalent penalty. The Tribunal found the quantum excessive and considered a reduced penalty sufficient to meet the ends of justice.

Conclusion: The penalty was sustained in principle but reduced to Rs. one lakh.

Final Conclusion: The demand was confirmed, while the penalty was substantially reduced, resulting in a partial relief to the assessee.

Ratio Decidendi: Where duty is discharged through inadmissible CENVAT credit, the clearance is treated as without payment of appropriate duty and the liability remains recoverable in cash, though the penalty may be moderated on the facts of the case.

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