Cenvat credit on returned rejected goods upheld where Rule 16 applies and disclosed records defeat extended limitation

Rule 16 allows Cenvat credit on duty-paid goods returned by the buyer as rejected final products, and the special procedure for such returned goods prevails over the ordinary input-document requirements. Credit could not be denied merely because the return was supported by nominal issue vouchers where the returned goods and original excise invoices were available and the statutory purpose of Rule 16 was met. The demand was also time-barred because the credit was disclosed in statutory records and ER-1 returns, with no suppression or misstatement shown to justify extended limitation. The impugned order was set aside and relief followed.

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Issues: (i) Whether credit could be availed on rejected goods returned by the buyer on the basis of nominal issue vouchers when the original central excise invoices were also returned; (ii) whether the demand was barred by limitation.

Issue (i): Whether credit could be availed on rejected goods returned by the buyer on the basis of nominal issue vouchers when the original central excise invoices were also returned.

Analysis: The goods had been cleared on payment of duty and were received back as rejected final products. Rule 16 is a special provision dealing with receipt back of duty-paid goods and permits the assessee to treat such returned goods as inputs for credit purposes. In that setting, the document requirements applicable to ordinary input credit under Rule 7 do not control the situation. The absence of a nominal issue voucher in the strict modvatable sense could not defeat credit where the returned goods and the original excise invoices were available and the legislative intent of Rule 16 stood satisfied.

Conclusion: The assessee was entitled to Cenvat credit and the objection to credit on the ground of the document used for return was rejected.

Issue (ii): Whether the demand was barred by limitation.

Analysis: The credit was reflected in the statutory records and in the ER-1 return, and the notice itself was founded on scrutiny of those returns. On those facts, no suppression or misstatement with intent to evade duty could be attributed to the assessee. The notice having been issued beyond the normal period, the extended limitation was not available.

Conclusion: The demand was barred by limitation.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief, the assessee succeeding on both merits and limitation.

Ratio Decidendi: Rule 16, being a special provision for duty-paid goods returned after clearance, overrides the ordinary input-document requirements and permits credit where the returned goods and original duty-paid invoices establish receipt of the goods; a demand based on disclosed records cannot invoke extended limitation absent suppression with intent to evade duty.

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