Retrospective duty demand and extended limitation were both prima facie unavailable for removal of Cenvated capital goods.

Duty on removal of capital goods after availing Cenvat credit could not be applied retrospectively where the amended Rule 3(4) requiring payment of an amount equal to the credit availed came into force only on 1-3-2003, and the first clearance occurred before that date. On the later clearance, the record did not clearly bring that removal within the framed issue, and existing authority noted no basis for demanding duty on Cenvated capital goods removed after use in manufacturing. The extended period of limitation was not prima facie available because the record showed no finding of intent to evade duty; reliance on the earlier rule and a Board circular also negatived suppression. Interim relief was granted and the duty and penalty demands were stayed.

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Issues: (i) Whether duty could be demanded on removal of capital goods after availing Cenvat credit, having regard to the commencement of Rule 3(4) of the Cenvat Credit Rules, 2002. (ii) Whether the extended period of limitation could be invoked in the absence of material showing intent to evade duty.

Issue (i): Whether duty could be demanded on removal of capital goods after availing Cenvat credit, having regard to the commencement of Rule 3(4) of the Cenvat Credit Rules, 2002.

Analysis: The relevant amended provision requiring payment of an amount equal to the credit availed came into force on 1-3-2003. The first removal of capital goods took place before that date, and there was nothing to indicate retrospective operation of the amendment. As to the later removal, the order records that the issue framed below did not clearly cover that clearance. The order also notes that, on merits, there was already authority holding that under the Cenvat Credit Rules, 2002 there was no basis for demanding duty on Cenvated capital goods removed after use in the factory for manufacture of final products.

Conclusion: The assessee had a prima facie case against the duty demand on merits.

Issue (ii): Whether the extended period of limitation could be invoked in the absence of material showing intent to evade duty.

Analysis: The finding recorded by the original authority rested only on short payment and contravention of Rule 3(4), without a finding of intent to evade duty. The order notes that the assessee had followed the erstwhile rule for the first clearance and had acted in accordance with the Board's circular for the second clearance, which negatived any prima facie inference of deliberate suppression or evasion.

Conclusion: The extended period of limitation was not prima facie invocable.

Final Conclusion: The assessee was entitled to interim relief, and the duty and penalty demands were stayed pending further proceedings.

Ratio Decidendi: An extended period of limitation cannot be invoked without a prima facie finding of intent to evade duty, and a post-amendment duty provision cannot be applied retrospectively to clearances made before it came into force.

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