Cenvat credit on obsolete inputs and extended limitation turned on disclosure of facts and absence of intent to evade.
Removal of obsolete Cenvat-credit availed inputs as such was treated as a clearance attracting duty on the credit originally taken under Rule 3(4) of the Cenvat Credit Rules, 2002, and the merits demand was sustained on that basis. However, the extended period of limitation was held unavailable because the dispute arose from interpretation of the rule, the assessee had disclosed the material facts during audit, and there was no fraud, wilful misstatement, suppression, or intent to evade duty. On that reasoning, the demand, interest, and penalty could not be sustained and the appeal was allowed.
Issues: (i) Whether Cenvat credit was required to be reversed on removal of obsolete inputs as such, or whether payment of duty on transaction value under Rule 3(4) of the Cenvat Credit Rules, 2002 was sufficient; (ii) Whether the extended period of limitation could be invoked for recovery of the alleged short-paid amount.
Issue (i): Whether Cenvat credit was required to be reversed on removal of obsolete inputs as such, or whether payment of duty on transaction value under Rule 3(4) of the Cenvat Credit Rules, 2002 was sufficient.
Analysis: The clearances were of Cenvat-credit availed inputs that had become obsolete and were removed without being used in manufacture. Such removals were treated as removals of inputs as such. The governing provision during the relevant period required payment of the duty amount relatable to the credit taken on such removal. The question of whether liability was confined to reversal of the original credit was resolved against the assessee in the Larger Bench ruling relied upon by the Tribunal, and the same principle was applied to the facts here.
Conclusion: The demand on the merits was upheld for the amount relatable to the credit originally taken, and the separate demand on inputs found short was also sustained on merits.
Issue (ii): Whether the extended period of limitation could be invoked for recovery of the alleged short-paid amount.
Analysis: The dispute turned on interpretation of the applicable rule, and the record did not show deliberate short payment with intent to evade duty. The assessee had disclosed the material facts to the department during audit and had furnished further information thereafter. Where conflicting Tribunal views existed on the legal position, extended limitation was not available in the absence of fraud, wilful misstatement, suppression, or intent to evade.
Conclusion: The extended period of limitation was not invokable.
Final Conclusion: The order confirming demand, interest, and penalty could not be sustained and was set aside, resulting in allowance of the appeal.
Ratio Decidendi: Where removal of Cenvat-credit availed inputs as such occurs under a disputed interpretation of the governing rule and the assessee has disclosed the facts, extended limitation cannot be invoked absent intent to evade, suppression, fraud, or wilful misstatement.
TaxTMI 
AI Drafter ✕
TaxTMI 
