Cenvat credit demand and suppression upheld, but reduced penalty option remains available under the statutory proviso.

The limitation challenge to the Cenvat credit demand was not accepted, as the issue had been raised only as an alternate contention and the record supported a finding of suppression based on an unsupported document trail. The demand was therefore left undisturbed. The assessee was, however, entitled to the statutory option of reduced penalty under the proviso to Section 11AC, so long as duty, interest, and 25% of the penalty were paid within thirty days. The balance penalty would not then be recoverable. The rectification was thus effective only to this limited extent, without altering the substantive demand or the suppression finding.

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Issues: (i) Whether the demand of Cenvat credit could be challenged on limitation and suppression despite the absence of a cross-objection. (ii) Whether the assessee was entitled to the statutory option of reduced penalty under the proviso to Section 11AC.

Issue (i): Whether the demand of Cenvat credit could be challenged on limitation and suppression despite the absence of a cross-objection.

Analysis: The limitation plea was raised only as an alternate contention. The Tribunal noted that the Revenue had appealed against the order on merits and, strictly speaking, the absence of a cross-objection meant the limitation ground could not be canvassed. On the facts, the credit had been taken on the basis of an unsupported document trail, and the observations in the earlier order were treated as sufficient to sustain the view that suppression was established and the result would not change even if limitation were discussed separately.

Conclusion: The limitation challenge was rejected and the invocation of suppression was sustained.

Issue (ii): Whether the assessee was entitled to the statutory option of reduced penalty under the proviso to Section 11AC.

Analysis: The assessee sought the benefit of paying duty, interest, and a reduced penalty within the statutory period. The departmental representative did not object to extension of that benefit in the interest of fairness. The order therefore recorded that if duty, interest, and 25% of the penalty were paid within thirty days, the balance penalty would not be recoverable.

Conclusion: The assessee was granted the option to discharge the liability with reduced penalty in accordance with the proviso to Section 11AC.

Final Conclusion: The rectification application succeeded only to the extent of granting the statutory reduced-penalty option, while the challenge on limitation and suppression did not result in any modification of the substantive demand.

Ratio Decidendi: Where penalty is sustained under Section 11AC, the assessee may be afforded the statutory option of reduced penalty if the conditions in the proviso are satisfied, even though the main demand and finding of suppression are not disturbed.

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