Re-credit of processed inputs must be taken only in the specified account; penalty was nevertheless set aside.

Where the rule scheme specifically confined re-credit on return of processed inputs to the account maintained under Rule 57G, the assessee could not take that credit in the Personal Ledger Account merely because the original debit may have been made through another permitted account. The substantive credit claim was therefore contrary to law. On penalty, the record did not disclose a sufficient basis for penal action in the circumstances, so the penalty was unsustainable and was set aside.

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Issues: (i) Whether credit of the amount debited when inputs were sent out for further processing could be taken back in the Personal Ledger Account on return of the processed inputs; (ii) Whether the penalty imposed on the appellant was sustainable.

Issue (i): Whether credit of the amount debited when inputs were sent out for further processing could be taken back in the Personal Ledger Account on return of the processed inputs.

Analysis: The relevant provisions permitted debit on clearance of inputs either in the account maintained under Rule 57G, the account current under Rule 9, or Rule 173, but the provision for re-credit on receipt of the processed inputs back in the factory confined the credit to the account maintained under Rule 57G. The distinction in the place of credit was expressly built into the scheme and had to be given effect to as written.

Conclusion: The credit on return of the goods could not be taken in the Personal Ledger Account and the appellant's action was contrary to law.

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

Analysis: The record did not disclose a basis for penal action in the circumstances of the case, although the substantive credit issue was decided against the appellant.

Conclusion: The penalty of Rs. 2,000 was not sustainable and was set aside.

Final Conclusion: The substantive demand interpretation was upheld, but the penal consequence was deleted, leaving the appellant with only partial relief.

Ratio Decidendi: Where the governing rule specifies the account in which re-credit may be taken on return of processed inputs, credit must be claimed only in that specified account and not in another account merely because the original debit could have been made there.

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