Cenvat credit reversal under an invalid circular was not voluntary, and refund could not be denied as time-barred.

Reversal of Cenvat credit made in compliance with a Board circular was treated as non-voluntary, because the reversal followed an invalid legal position later quashed by higher courts. The requirement in the Central Excise Manual to protest payment of duty was held inapplicable to such a credit reversal, so refund could not be denied on the ground that the act was voluntary. The refund claim was also held to be within limitation, because time ran from discovery of the mistake after judicial invalidation of the circular, and the period spent in litigation did not defeat the claim. The assessee was held entitled to refund with consequential relief.

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Issues: (i) Whether the reversal of Cenvat credit made pursuant to the Board circular could be treated as voluntary and thereby deny refund; (ii) Whether the refund claim was barred by limitation.

Issue (i): Reversal was made in compliance with the Board circular and not as a voluntary act in the true sense. The subsequent quashing of the circular by the higher courts established that the underlying reversal was based on an invalid legal position. The requirement in the Central Excise Manual relating to protest for payment of duty was held inapplicable to a mere reversal of credit following the circular.

Conclusion: The reversal of credit was not voluntary and the refund claim could not be rejected on that ground.

Issue (ii): The claim was held to be within time because limitation was treated as running from the point when the mistake became known after the higher judicial pronouncement, and the period consumed in litigation was not to defeat the claim. Reliance was placed on the principle that limitation begins from discovery of mistake.

Conclusion: The refund claim was not barred by limitation.

Final Conclusion: The order rejecting refund was set aside and the assessee was held entitled to refund with consequential relief.

Ratio Decidendi: Where credit is reversed in obedience to an invalid circular and the mistake is later discovered upon judicial invalidation of that circular, refund cannot be denied as voluntary or time-barred merely by reference to the original reversal date.

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