Cenvat credit and limitation: recipient credit upheld despite supplier's lower assessment, and extended period was not invocable.

Cenvat or Modvat credit could not be denied to the recipient merely because the supplier's final assessment reflected a lower duty liability, where the supplier had actually paid the higher duty and had not claimed any refund; the recipient's credit was therefore upheld in favour of the assessee. The demand was also held time-barred because the show cause notice was issued beyond the normal period, and the same bona fide dispute that led to rejection of penalty negatived any basis for invoking the extended period. Consequential relief followed, and the Revenue's appeal failed.

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Issues: (i) whether credit of duty paid on inputs could be denied to the recipients merely because the supplier's final assessment reflected a lower duty liability; (ii) whether the demand was barred by limitation and the extended period could be invoked.

Issue (i): whether credit of duty paid on inputs could be denied to the recipients merely because the supplier's final assessment reflected a lower duty liability.

Analysis: The input supplier had actually paid the higher duty and had not claimed refund on final assessment. The disputed denial rested only on the view that credit was available to the extent of duty that ought to have been paid by the supplier, not the duty actually paid. The settled tribunal and High Court view applied in the order is that recipient credit cannot be varied on the ground that the supplier should have paid lesser duty.

Conclusion: The denial of credit was not justified and the issue was decided in favour of the assessee.

Issue (ii): whether the demand was barred by limitation and the extended period could be invoked.

Analysis: The show cause notice was issued beyond the normal period. The order notes that the penalty had already been set aside on the footing that the dispute involved a bona fide interpretation and there was no mala fide intent. On that basis, the same facts negatived invocation of the extended period, and the demand was held to be time-barred.

Conclusion: The demand was barred by limitation and the issue was decided in favour of the assessee.

Final Conclusion: The assessee's appeals succeeded with consequential relief, and the Revenue's appeal failed because the foundation for penalty also supported rejection of the extended period and the credit denial.

Ratio Decidendi: Cenvat or Modvat credit cannot be denied at the recipient's end merely because the supplier's assessment is reduced, and where the dispute is held to be bona fide without mala fide intent, the extended period of limitation is not invocable.

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