CENVAT credit on inputs for exempted goods is recoverable, and customs-style auction recovery may validly apply to excise dues.

When a final product becomes exempt from excise duty, CENVAT credit on inputs used in its manufacture is no longer maintainable, including inputs lying in stock and inputs contained in exempt finished goods, so the credit may be recovered. The recovery mechanism under Section 12 of the Central Excise Act, 1944 incorporates the Customs Act recovery machinery, allowing attachment and auction for excise dues. On that basis, the attachment and auction proceedings were treated as valid, and the challenge to the recovery process failed.

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Issues: (i) Whether CENVAT credit taken on inputs lying in stock and on inputs contained in finished goods became recoverable after the final product was exempted from excise duty. (ii) Whether recovery by attachment and auction could be made by applying the Customs Act provisions through Section 12 of the Central Excise Act, 1944.

Issue (i): Whether CENVAT credit taken on inputs lying in stock and on inputs contained in finished goods became recoverable after the final product was exempted from excise duty.

Analysis: The exemption of the final product brought the goods within the category of exempted goods. The governing credit rules provided that credit is not available on inputs used in the manufacture of exempted goods, and the recoverable amount covered both unused inputs and inputs contained in the exempted finished goods. The earlier appellate orders had already upheld the demand, and the challenge could not succeed on the premise that the demand related only to unused inputs.

Conclusion: The credit was recoverable and the challenge failed.

Issue (ii): Whether recovery by attachment and auction could be made by applying the Customs Act provisions through Section 12 of the Central Excise Act, 1944.

Analysis: Section 12 of the Central Excise Act, 1944 adopted the recovery mechanism under Section 142 of the Customs Act, 1962, making the attached-property recovery rules applicable to central excise dues. The auction process was conducted under the prescribed recovery guidelines, and the sale price achieved in the second auction did not disclose any illegality merely because it was below the reserve price fixed earlier.

Conclusion: The attachment and auction proceedings were valid.

Final Conclusion: The recovery proceedings, attachment, and auction were sustained, and the writ petition was dismissed.

Ratio Decidendi: Where the final product is exempt, CENVAT credit on inputs used in its manufacture is not maintainable and may be recovered under the applicable credit and recovery provisions, including by adopting customs recovery machinery through Section 12 of the Central Excise Act, 1944.

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