Cenvat credit on DTA clearances by a 100% EOU is barred where duty must be paid through account current.

A 100% Export Oriented Unit's use of Cenvat credit for duty on Domestic Tariff Area clearances is examined against the Central Excise framework, and the text notes that Rule 17 required payment through account current rather than credit, so credit could not be used for that purpose despite the absence of an express bar in later rules. It also states that penalties on the assessee and its General Manager were considered unsustainable where prior intimation to the Department had been acknowledged and the conduct was not contumacious. Interest under Section 11AB was treated as consequential once the duty demand was confirmed.

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Issues: (i) Whether a 100% Export Oriented Unit could avail Cenvat credit for payment of duty on clearances to the Domestic Tariff Area under the prevailing Central Excise regime; (ii) Whether penalties imposed on the assessee and its General Manager were sustainable; (iii) Whether interest under Section 11AB was payable.

Issue (i): Whether a 100% Export Oriented Unit could avail Cenvat credit for payment of duty on clearances to the Domestic Tariff Area under the prevailing Central Excise regime.

Analysis: The appellants had intimated the Department of their intention to take Cenvat credit and the Department had acknowledged that intimation. On the merits, the earlier prohibition found in Rule 100H of the Central Excise Rules, 1944 was not carried forward in the later rules, so the absence of an express bar to availing credit was noted. However, Rule 17 of the Central Excise Rules required duty on DTA clearances by a 100% EOU to be paid through account current, meaning PLA, and not through Cenvat credit. The resulting inconsistency between the Cenvat scheme and the Central Excise Rules could only be resolved legislatively.

Conclusion: The assessee could not use the Cenvat credit for payment of duty on DTA clearances, and the duty demand was upheld.

Issue (ii): Whether penalties imposed on the assessee and its General Manager were sustainable.

Analysis: Since the assessee had informed the Department before taking credit and acted on the basis of acknowledged intimation, the conduct was not contumacious. In the absence of wilful or blameworthy conduct warranting penal action, the penalties could not be sustained.

Conclusion: The penalties imposed on the assessee and on the General Manager were set aside.

Issue (iii): Whether interest under Section 11AB was payable.

Analysis: Once the duty demand was confirmed, the consequential liability to interest followed under the applicable statutory provision.

Conclusion: The demand of interest was upheld.

Final Conclusion: The assessee succeeded on the penalty issues but failed on the duty demand and interest, resulting in partial relief only.

Ratio Decidendi: Where Rule 17 requires duty on DTA clearances by a 100% EOU to be paid through account current, Cenvat credit cannot be used for that payment even if no express prohibition exists elsewhere, and penalties are unwarranted in the absence of contumacious conduct.

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