Duty reappropriation allowed for paid duty on non-dutiable goods, but wrongly availed Cenvat credit could not be adjusted.

Duty already paid on non-dutiable Cable Jointing Kits could be reappropriated against duty on intermediate products because the amount had been credited to the Government and no refund to the assessee was involved; Section 11B and unjust enrichment were therefore inapplicable, and the adjustment was permitted. By contrast, wrongly availed Cenvat credit on bought-out items could not be neutralised against duty paid on the final product, as one illegality could not be set off against another; the demand and penalty were sustained.

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Issues: (i) Whether duty paid on the non-dutiable Cable Jointing Kits could be adjusted against the duty liability on the intermediate products manufactured and used in their assembly. (ii) Whether the demand of wrongly availed Cenvat credit on bought-out items could be adjusted against the duty paid on Cable Jointing Kits.

Issue (i): Whether duty paid on the non-dutiable Cable Jointing Kits could be adjusted against the duty liability on the intermediate products manufactured and used in their assembly.

Analysis: The duty collected on Cable Jointing Kits had been paid to the Government, and the question was whether adjustment of that amount against duty payable on intermediate products would amount to a refund requiring a claim under Section 11B of the Central Excise Act, 1944. The Tribunal held that such adjustment was not a refund of money to the assessee but only a reappropriation of duty already paid under an incorrect head. It further held that Section 11D did not bar the adjustment, as the amount collected as duty had already been credited to the Government and the issue was outside the scope of the show cause notice. The principle of unjust enrichment was held inapplicable because no amount was being returned to the assessee.

Conclusion: The adjustment of duty paid on Cable Jointing Kits against the duty liability on intermediate products was permissible, and the Revenue's appeal on this issue was dismissed.

Issue (ii): Whether the demand of wrongly availed Cenvat credit on bought-out items could be adjusted against the duty paid on Cable Jointing Kits.

Analysis: The Tribunal held that the assessee was not entitled to the Cenvat credit on bought-out items and that the credit had been wrongly availed. It found that allowing such credit to be neutralised against duty paid on Cable Jointing Kits would amount to permitting one wrong to be cured by another wrong. The adjustment was therefore held impermissible, and the original adjudication restoring the demand and penalty was upheld.

Conclusion: The adjustment of the wrongly availed Cenvat credit was disallowed, and the Revenue's appeal on this issue was allowed.

Final Conclusion: The decision sustained adjustment of duty paid on the non-dutiable final product against duty on intermediate products, but rejected adjustment of wrongly availed Cenvat credit against duty paid on the final product, resulting in partial relief to both sides.

Ratio Decidendi: Adjustment of duty already credited to the Government under an incorrect head may be allowed against a separate duty liability when it does not involve repayment to the assessee, but wrongly availed Cenvat credit cannot be neutralised by a contrary adjustment of another illegal benefit.

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