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Issues: (i) whether excess duty paid on account of forced loading of 15% notional profit and excess shrinkage could be adjusted against the alleged short levy on the very same transactions; (ii) whether denial of the entire deemed CENVAT credit for domestic clearances was sustainable when the alleged suppression related only to some invoices; and (iii) whether the denial/recovery of deemed credit in respect of export clearances also required re-computation on the same principles.
Issue (i): whether excess duty paid on account of forced loading of 15% notional profit and excess shrinkage could be adjusted against the alleged short levy on the very same transactions.
Analysis: The valuation of job-work clearances had been inflated under departmental directions requiring loading of 15% towards notional profit, even though the Board had clarified that assessable value in job work consisted of material cost plus job charges. The same reasoning applied to shrinkage, where the assessee asserted that it had taken higher shrinkage than the trade notice norm. Where excess duty is paid on the same set of clearances, such excess cannot be ignored while computing short levy on those very transactions.
Conclusion: The excess payments on account of notional profit and shrinkage had to be adjusted, and the short demand was required to be recomputed.
Issue (ii): whether denial of the entire deemed CENVAT credit for domestic clearances was sustainable when the alleged suppression related only to some invoices.
Analysis: The exclusion clause in the notification denying deemed credit applies only where duty has not been levied or paid, or has been short paid, by reason of fraud, collusion, wilful misstatement or suppression. That provision did not authorize denial of the entire credit for all clearances when the alleged misdeclaration related only to some invoices. The alleged short levy and the credit denied were also not linked to the same quantity of fabrics.
Conclusion: Denial of the entire deemed credit was unsustainable and the credit was required to be re-computed only for the invoices connected with any surviving short payment.
Issue (iii): whether the denial/recovery of deemed credit in respect of export clearances also required re-computation on the same principles.
Analysis: The same valuation corrections and the same invoice-wise linkage applied to the export clearances as well. Any alleged excess deemed credit could not be worked out without first adjusting the excess duty already paid on account of notional profit and shrinkage, and without confining the exercise to the relevant clearances.
Conclusion: The export-related deemed credit issue also required fresh computation in the same manner.
Final Conclusion: The impugned order was set aside and the matter was remitted for fresh adjudication after allowing the assessee to produce evidence and after making the required adjustments on valuation and credit.
Ratio Decidendi: Where excess duty has been paid on the same transactions because of departmental valuation directions, such excess must be adjusted while determining any short levy, and denial of deemed credit must be confined to the specific clearances to which the alleged suppression actually relates.
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