CENVAT credit on furnace oil for steam cleared to a sister concern was reversible, but time-bar and penalty relief applied.

Extended limitation could not be invoked again for earlier notices on the same dispute because the Department was already aware of the issue, so the time-barred demand was set aside. For the later period, the demand was within normal limitation and was sustained. On merits, CENVAT credit attributable to furnace oil used to generate steam cleared to a sister concern was held reversible with interest for the periods within limitation. Penalty was deleted because the assessee had acted under a bona fide belief until the issue was finally settled against it.

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Issues: (i) whether the demand for reversal of CENVAT credit on furnace oil used in generating steam sold to a sister concern was barred by limitation for certain periods; (ii) whether CENVAT credit was nevertheless reversible on merits for the periods within limitation and whether penalty was exigible.

Issue (i): whether the demand for reversal of CENVAT credit on furnace oil used in generating steam sold to a sister concern was barred by limitation for certain periods.

Analysis: The notices covering the earlier period were found to be time-barred because the Department was already aware of the dispute and could not invoke the extended period again on the same issue. For the later period, the notices were within the normal limitation period and were therefore valid.

Conclusion: The demand for the time-barred period was set aside, while the demand for the later period within limitation was sustained.

Issue (ii): whether CENVAT credit was nevertheless reversible on merits for the periods within limitation and whether penalty was exigible.

Analysis: On merits, the issue had already been decided against the assessee, and the credit attributable to furnace oil used for generating steam cleared to a sister concern was liable to be reversed with interest for the periods within limitation. However, penalty was not warranted because the assessee had acted under a bona fide belief until the issue was settled against it.

Conclusion: Reversal of CENVAT credit with interest was upheld for the periods within limitation, but penalty was set aside.

Final Conclusion: The appeals were disposed of by sustaining the duty demand only to the extent it was within limitation and supported on merits, while deleting penalty and rejecting the time-barred demand.

Ratio Decidendi: Where credit on inputs is relatable to exempt steam cleared to a sister concern, reversal is required on merits for periods within limitation, but the extended period cannot be invoked again once the Department is already aware of the dispute, and penalty may be denied where the assessee acted under bona fide belief.

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