Cenvat credit demand fails without proof of wrongful availment; extended limitation and penalty also unavailable.

A demand for Cenvat credit reversal on short-received or rejected inputs failed because the record did not establish that the assessee had actually availed credit on such inputs; mere reliance on rejection reports and an alleged admission was insufficient without independent proof of wrongful availment. The extended limitation period was also unavailable because the same transactions had already been the subject of earlier proceedings and there was no evidence of fraud, collusion, wilful misstatement, or suppression of facts with intent to evade duty. As the demand was unsustainable and the show-cause notices did not properly sustain Section 11AC penalty, the penalty could not be restored.

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Issues: (i) Whether the demand of Cenvat credit on short received or rejected inputs was sustainable on merits in the absence of evidence showing wrongful availment of credit; (ii) whether the extended period of limitation and penalty under Section 11AC were invocable on the facts of the case.

Issue (i): Whether the demand of Cenvat credit on short received or rejected inputs was sustainable on merits in the absence of evidence showing wrongful availment of credit.

Analysis: The demand rested on material rejection reports and the finding that the assessee had not reversed credit relatable to inputs not used in manufacture. However, the record did not establish that the assessee had in fact taken credit on rejected or returned inputs. The finding of admission by the assessee was treated as incorrect, and no independent evidence was cited to prove wrongful availment of credit.

Conclusion: The demand on merits was not sustainable.

Issue (ii): Whether the extended period of limitation and penalty under Section 11AC were invocable on the facts of the case.

Analysis: The same transactions had already formed the basis of an earlier proceeding, and the second demand was raised on the same footing by invoking the larger period. In the absence of evidence of fraud, collusion, wilful misstatement, or suppression of facts with intent to evade duty, the extended period could not be applied. Since the demand itself was unsustainable and the show-cause notices did not propose Section 11AC penalty in the requisite manner, equal penalty could not be restored.

Conclusion: The extended period and the penalty under Section 11AC were not invocable.

Final Conclusion: The assessee succeeded on the substantive challenge to the demands and penalties, while the revenue's appeals for restoration of penalty failed.

Ratio Decidendi: A demand based on alleged non-reversal of Cenvat credit cannot be sustained without affirmative evidence of wrongful availment, and the extended period with Section 11AC penalty is unavailable absent proof of fraud, collusion, wilful misstatement, or suppression of facts with intent to evade duty.

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