FIFO-based Cenvat credit computation: demand failed because the correct clearance month showed no short payment.

Correct application of the First In First Out method for computing inputs cleared as such determined the Cenvat credit reversal and the alleged differential excise duty. On examination of the records, the appellate authority held that the quantity had to be reckoned from January 2004 rather than December 2003, which changed the credit working and showed no short payment. The Tribunal found no infirmity in that computation and accepted the Commissioner (Appeals)'s reasoning, so the demand of differential duty, interest and penalty was not sustainable and the Revenue's challenge failed.

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Issues: Whether the demand of differential central excise duty, interest and penalty was sustainable on the basis of the method adopted for working out the quantity of inputs cleared as such and the corresponding reversal of Cenvat credit.

Analysis: The dispute turned on the correct application of the First In First Out method for computing the inputs cleared as such. The appellate authority had examined the records and calculations in detail and held that the quantity had to be reckoned from January 2004 rather than December 2003, which altered the working of credit and showed that there was no short payment. The Tribunal found no infirmity in that reasoning and accepted the conclusion that the computation made by the Commissioner (Appeals) was correct.

Conclusion: The demand of differential duty, interest and penalty was not sustainable and the Revenue's challenge failed.

Final Conclusion: The appellate order setting aside the tax demand and consequential penalties was sustained.

Ratio Decidendi: Where the computation of credit reversal depends on factual stock movement, the correct FIFO application must be based on the properly identified month of clearances, and a demand cannot survive if that computation shows no short payment.

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