Limitation and voluntary payment in Cenvat disputes: time-barred demand fails, but prepaid liability may still be appropriated.

Extended limitation could not be invoked where the assessee's statutory returns disclosed clearance under Notification No. 64/95-CE and payment of 8% on exempted goods, so suppression was not made out and the demand was time-barred. Because the demand failed on limitation, the consequential interest and penalty also could not survive. However, the underlying liability to reverse Cenvat credit attributable to inputs used in exempted goods remained in law, and limitation did not extinguish it. Amounts voluntarily paid by the assessee could therefore be appropriated against that liability, and that adjustment was sustained.

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Issues: (i) whether the extended period of limitation could be invoked for recovery of the differential duty and consequential interest and penalty; (ii) whether the amount already paid by the appellant could be appropriated notwithstanding the bar of limitation.

Issue (i): whether the extended period of limitation could be invoked for recovery of the differential duty and consequential interest and penalty.

Analysis: The appellant had disclosed in its statutory returns that clearances were being made under Notification No. 64/95-CE and that an amount equal to 8% of the value of exempted goods was being paid. In that situation, suppression of facts could not be alleged. The notice issued beyond the normal period was therefore barred by limitation. Once the demand itself was time barred, the consequential levy of interest and the penal action could not survive.

Conclusion: The extended period was not available to the Revenue, and the demand of interest and penalty was unsustainable.

Issue (ii): whether the amount already paid by the appellant could be appropriated notwithstanding the bar of limitation.

Analysis: Although the appellant was not entitled under Rule 6(3) of the Cenvat Credit Rules, 2002/2004 to discharge liability by paying 8% of the value of exempted goods, the liability to reverse credit attributable to inputs used in exempted products still existed in law. Limitation only barred coercive recovery by the department; it did not extinguish the underlying liability. Amounts voluntarily paid by the appellant could therefore be adjusted against that liability.

Conclusion: The appropriation of amounts already paid was sustained.

Final Conclusion: The appeal succeeded only to the extent of setting aside the interest and penalty, while the amount already paid towards the duty-related liability was confirmed to stand appropriated.

Ratio Decidendi: Non-disclosure cannot be inferred where the statutory returns themselves reveal the basis of payment, and limitation bars enforcement of the demand but does not wipe out a liability that has been voluntarily discharged.

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