Limited dispute clearance and revenue-neutral Cenvat practice led to dismissal of duty challenge and deletion of penalty.

Clearance from the Committee on Disputes covered only the penalty aspect, so the challenge to the duty demand fell outside the authorised scope and was held not maintainable. Penalty was then examined on the merits and was deleted because the dispute was revenue neutral under the Cenvat regime and the Department was aware of the practice of sending goods to job workers for minor work before despatch to customers. The result was dismissal of the duty-demand challenge and success for the assessee on penalty.

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Issues: (i) Whether the appeal against the duty demand was maintainable in view of the clearance granted by the Committee on Disputes only for the penalty issue; (ii) whether the penalty imposed was sustainable in a revenue-neutral Cenvat regime where the departmental authorities were aware of the practice followed.

Issue (i): Whether the appeal against the duty demand was maintainable in view of the clearance granted by the Committee on Disputes only for the penalty issue.

Analysis: The clearance obtained from the Committee on Disputes permitted pursuit of the dispute only on the penalty aspect and recorded the dispute as revenue neutral in the Cenvat regime. In that situation, the challenge to the duty demand was beyond the scope of the clearance.

Conclusion: The appeal in respect of the duty demand was not maintainable and stood dismissed.

Issue (ii): Whether the penalty imposed was sustainable in a revenue-neutral Cenvat regime where the departmental authorities were aware of the practice followed.

Analysis: The dispute was recorded as revenue neutral, and the manner in which the goods were sent to job workers for minor work and thereafter despatched to customers was known to the Department. On these facts, no basis remained for imposition of penalty.

Conclusion: The penalty was set aside and the appeal succeeded on the penalty issue.

Final Conclusion: The challenge to the duty demand failed on maintainability, but the penalty was deleted, resulting in a partial success for the appellant.

Ratio Decidendi: Where a dispute is cleared for appeal only on a limited issue, the appeal is maintainable only to that extent, and penalty cannot be sustained in a revenue-neutral situation with departmental knowledge of the practice followed.

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