Special duty-payment rule overrides Cenvat credit, while penalty fails absent intent to evade duty.

During the forfeiture period under Rule 8(4) of the Central Excise (No. 2) Rules, 2001, duty had to be paid through the account current/PLA, and the general availability of Cenvat credit could not override that special restriction; payment by Cenvat debit was therefore impermissible. On penalty, the record showed prior disclosure of the assessee's understanding of the payment method and no material indicating intent to evade duty, so penalty under Rule 25 was held unsustainable. The stated result was duty and interest payable in cash for the relevant period, with relief from penalty and recredit of the corresponding Cenvat debit after cash payment.

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Issues: (i) Whether, during the period of forfeiture of the fortnightly duty-payment facility under Rule 8(4) of the Central Excise (No. 2) Rules, 2001, duty could be paid by debiting the Cenvat account instead of the account current. (ii) Whether penalty under Rule 25 of the Central Excise (No. 2) Rules, 2001 was sustainable in the absence of intent to evade duty.

Issue (i): Whether, during the period of forfeiture of the fortnightly duty-payment facility under Rule 8(4) of the Central Excise (No. 2) Rules, 2001, duty could be paid by debiting the Cenvat account instead of the account current.

Analysis: Rule 8(4) specifically provided that, during the forfeiture period, the assessee was required to pay duty for each consignment by debit to the account current. The account current referred to the PLA, and the facility stood curtailed for that period. The general right to use Cenvat credit under Rule 3(3) of the Cenvat Credit Rules, 2001 could not override this special restriction. As the payment was made partly through Cenvat debit, the assessee did not fully comply with the mandatory requirement for the forfeiture period.

Conclusion: The duty liability was correctly held payable only through PLA/account current debit during the forfeiture period, and the assessee's use of Cenvat credit for that period was impermissible.

Issue (ii): Whether penalty under Rule 25 of the Central Excise (No. 2) Rules, 2001 was sustainable in the absence of intent to evade duty.

Analysis: The correspondence on record showed that the assessee had informed the department of its understanding of the payment method and continued to discharge duty without concealment. There was no timely departmental response, and the show-cause notice was issued much later. On these facts, the conduct did not indicate an intent to evade duty. In the absence of such intent, invocation of penal consequences was unwarranted.

Conclusion: The penalty under Rule 25 was not sustainable and was set aside.

Final Conclusion: The assessee remained liable to pay the duty and interest in cash for the relevant period, but was granted relief from penalty and allowed recredit of the corresponding Cenvat debit upon cash payment.

Ratio Decidendi: Where a special rule requires duty payment by account current during a forfeiture period, that requirement prevails over the general Cenvat credit facility; however, penalty cannot be sustained without material indicating intent to evade duty.

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