Proforma credit on stock inputs was denied absent a transitional provision, and penalty was sustained.

In the proforma credit scheme under Rule 56A, credit was held unavailable on inputs already lying in stock when the notification took effect, because the scheme contained no express transitional provision comparable to Rule 57H of the Modvat regime. The earlier authority relied on by the assessee was distinguished as concerning the date from which a benefit operated, not eligibility to claim it. The plea that penalty should be reduced for absence of mens rea was also rejected, as the statutory credit claim itself was untenable and the penalty was sustained.

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Issues: (i) Whether proforma credit could be availed on inputs lying in stock on the date of the notification under Rule 56A; (ii) Whether penalty was sustainable in the absence of mens rea.

Issue (i): Whether proforma credit could be availed on inputs lying in stock on the date of the notification under Rule 56A.

Analysis: The claim was examined with reference to Rule 56A and the distinction drawn between proforma credit and transitional credit. The existence of a specific transitional provision in Rule 57H of the Modvat scheme was treated as significant, because it expressly covered inputs lying in stock, whereas the proforma credit scheme contained no comparable enabling provision. The earlier decision relied on by the assessee was distinguished as relating to the date from which benefit was available, not to eligibility itself.

Conclusion: The assessee was not entitled to proforma credit on the stock lying in hand.

Issue (ii): Whether penalty was sustainable in the absence of mens rea.

Analysis: The rejection of credit meant the demand survived, and the tribunal found that the statutory scheme did not support the assessee's claim. On that basis, the plea for reduction of penalty was rejected and the absence of mens rea was not accepted as a ground to interfere with the levy.

Conclusion: The penalty was upheld.

Final Conclusion: The appeal failed on both the credit entitlement and penalty issues, and the order below was sustained.

Ratio Decidendi: In the absence of an express transitional provision in the proforma credit scheme comparable to Rule 57H, credit cannot be claimed on inputs already lying in stock when the notification takes effect; penalty may also be sustained where the statutory claim itself is untenable.

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