Trading in imported goods is not exempted goods under Rule 6, and prior departmental knowledge bars extended limitation.

Trading in imported goods could not be treated as exempted goods or exempted service for Rule 6 of the CENVAT Credit Rules, 2004, because such goods were not excisable and the assessee had not taken ineligible credit on the trading activity; the demand under Rule 6(2) and Rule 6(3) therefore failed. The extended period of limitation was also unavailable because the department had prior knowledge of the assessee's credit allocation method from earlier audit and proceedings, so the necessary ingredients for extended limitation were not established. The demands failed on merits and on limitation, and the appeal was allowed.

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Issues: (i) whether trading in imported goods could be treated as exempted goods or exempted service so as to attract reversal or payment under Rule 6 of the CENVAT Credit Rules, 2004, and (ii) whether the extended period of limitation could be invoked.

Issue (i): whether trading in imported goods could be treated as exempted goods or exempted service so as to attract reversal or payment under Rule 6 of the CENVAT Credit Rules, 2004.

Analysis: Imported goods traded by the appellant were not excisable goods and therefore could not be treated as exempted goods within the meaning of the rule. The appellant had not availed credit on input services relatable to trading activity, and in any event had worked out credit on a proportionate basis. In the absence of evidence that ineligible credit had been taken, the demand under Rule 6(2) and Rule 6(3) could not stand.

Conclusion: The demand founded on Rule 6 was unsustainable and was decided in favour of the assessee.

Issue (ii): whether the extended period of limitation could be invoked.

Analysis: The department was already aware of the appellant's method of credit allocation from an earlier audit and prior proceedings. Since the practice had been within the department's knowledge, the ingredients necessary for invoking the extended period were not established.

Conclusion: Invocation of the extended period of limitation was not sustainable and this issue was also decided in favour of the assessee.

Final Conclusion: The impugned demands failed both on merits and on limitation, and the appeal was allowed.

Ratio Decidendi: Trading in imported goods cannot be treated as exempted goods for the purpose of Rule 6 of the CENVAT Credit Rules, 2004, and where the department already knows the relevant facts, the extended period of limitation cannot be invoked.

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