Cenvat credit on destroyed medicines after duty remission is treated as inadmissible, with limitation defence also rejected.

Cenvat credit on inputs used to manufacture medicines later destroyed after remission of duty is treated as inadmissible, because the scheme is applied on the basis that credit is available only where the final product suffers duty; remission is viewed as equivalent to clearance without duty, so retaining the credit would create an unintended refund-like benefit. The note also states that limitation does not protect the claimant where the goods were known to be unfit for human consumption and the credit should have been reversed when destruction occurred, making the longer period available and leaving the demand sustainable with interest and penalty.

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Issues: (i) Whether Cenvat credit availed on inputs used in the manufacture of medicines that were later destroyed after remission of duty was admissible. (ii) Whether the demand for reversal of such credit was barred by limitation.

Issue (i): Whether Cenvat credit availed on inputs used in the manufacture of medicines that were later destroyed after remission of duty was admissible.

Analysis: The credit scheme was applied on the footing that credit is available only where the final product suffers duty. The remission of duty on the finished medicines was treated as equivalent, for Cenvat purposes, to clearance without duty, so allowing the input credit would confer an unintended benefit and result in a cash refund effect. The Board circular relied upon by the noticee was held not to govern the situation in the face of the later clarification and the reasoning adopted from the Tribunal decisions relied upon by the adjudicating authority.

Conclusion: The Cenvat credit was held inadmissible and recoverable.

Issue (ii): Whether the demand for reversal of such credit was barred by limitation.

Analysis: The authority held that the assessee was aware that the goods were unfit for human consumption and that the credit ought to have been reversed when the goods were destroyed. On those facts, the ordinary limitation plea was not accepted and the longer period was treated as available.

Conclusion: The demand was held not to be time-barred.

Final Conclusion: The credit demand was sustained with consequential interest and penalty, leaving no relief to the assessee on the merits or on limitation.

Ratio Decidendi: Where final products are destroyed after remission of duty, the corresponding input credit is not admissible because Cenvat credit cannot be retained when no duty is payable on the final product, and the limitation defence fails where the credit should have been reversed when the goods became unfit and were destroyed.

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