Section 11D recovery barred for duty paid to revenue under Cenvat rules; penalties also fail absent mala fides.

Section 11D of the Central Excise Act does not apply where excess duty is paid to the revenue on removal of inputs as such under rule 3(4) of the Cenvat Credit Rules, because the provision covers only duty amounts collected from buyers and not deposited. On those facts, the recovery demand was unsustainable and set aside. Penalty was also unwarranted because the dispute arose from interpretation of the statutory scheme, the transactions were supported by statutory records, and no mala fides were shown; the penalties were therefore annulled.

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Issues: (i) Whether excess duty paid on removal of inputs as such could be treated as an amount recoverable under section 11D of the Central Excise Act, 1944; and (ii) whether the penalty imposed on the appellants was sustainable.

Issue (i): Whether excess duty paid on removal of inputs as such could be treated as an amount recoverable under section 11D of the Central Excise Act, 1944.

Analysis: Under rule 3(4) of the Cenvat Credit Rules, 2002, as substituted with effect from 1-3-2003, when inputs on which credit has been taken are removed as such, the manufacturer is required to pay an amount equal to the credit availed. The excess amount paid over and above the credit taken was not collected as excise duty retained by the appellants, but was duly paid to the revenue. Since section 11D applies only where an amount representing duty is collected from buyers and not deposited, the provision had no application on these facts.

Conclusion: The demand under section 11D was not sustainable and was set aside.

Issue (ii): Whether the penalty imposed on the appellants was sustainable.

Analysis: The entire dispute turned on interpretation of the statutory scheme and the transactions were reflected in statutory documents. In the absence of mala fides, the penal consequence could not be justified.

Conclusion: The penalties imposed on all the appellants were set aside.

Final Conclusion: The liability under section 11D was rejected, the penalties were annulled, and only rectification of the Cenvat credit entries was required in accordance with the statutory scheme.

Ratio Decidendi: Section 11D applies only to amounts collected as duty from customers and not to amounts properly paid to the revenue under the Cenvat credit mechanism; where the dispute is purely interpretative and supported by statutory records, penalty is not warranted absent mala fides.

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