Bona fide belief on disputed CENVAT credit limits extended limitation and penalty, while normal-period demand survived.

Credit on guest house and colony maintenance services was treated as a genuinely disputable issue, and the assessee's reliance on an earlier favourable Tribunal view supported a bona fide belief in admissibility. On that basis, extended limitation for the CENVAT credit demand was held unavailable, so recovery was confined to the normal one-year period with interest. For the same reason, no intention to evade duty was attributed and penalty was held unsustainable. The demand for the normal period survived, but the assessee obtained partial relief on limitation and penalty.

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Issues: (i) whether the extended period of limitation was invocable for demand of CENVAT credit on guest house and colony maintenance services, and (ii) whether penalty was leviable for availing such credit.

Issue (i): whether the extended period of limitation was invocable for demand of CENVAT credit on guest house and colony maintenance services.

Analysis: The admissibility of credit on the services in question had been a disputable issue, and an earlier view of the Tribunal had been in favour of the assessee before the jurisdictional High Court settled the issue later. In these circumstances, the assessee's belief that the credit was admissible was treated as bona fide, and the element required for invoking the extended period was not made out. The demand was therefore confined to the period within one year from the date of the show cause notice, with the quantum to be worked out accordingly along with interest.

Conclusion: The extended period of limitation was not invocable, and the demand was restricted to the normal period.

Issue (ii): whether penalty was leviable for availing such credit.

Analysis: Since the credit issue was genuinely disputable and the assessee acted under a bona fide belief supported by an earlier favourable view, no intention to evade duty could be attributed. In the absence of such culpable intent, penalty under the Cenvat Credit Rules read with the Central Excise Act was not sustainable.

Conclusion: The penalty was not leviable and was set aside.

Final Conclusion: The appeal succeeded only on limitation and penalty, while the demand for the admissible normal period with interest survived, resulting in partial relief to the assessee.

Ratio Decidendi: Where the disputed taxability or credit eligibility issue had been the subject of conflicting views and the assessee acted under a bona fide belief, extended limitation and penalty for intent to evade are not justified.

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