Cenvat credit on fuel and extended limitation for separate accounts turned on statutory account-maintenance and suppression

Cenvat credit on input fuel used to generate electricity later applied in manufacturing dutiable and exempted goods was treated as inadmissible on merits, following Supreme Court, Tribunal and Gujarat High Court authority, so the Revenue succeeded on the substantive credit issue. However, the extended period of limitation and penalty for non-maintenance of separate accounts were held unsustainable because the applicable credit scheme did not require separate accounts for that fuel input during the relevant period and no suppression of facts was established. The demand beyond the normal period and the penalty therefore could not stand, even though the assessee lost on credit eligibility.

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Issues: (i) Whether Cenvat credit on input fuel used in generation of electricity, later used in manufacture of dutiable and exempted goods, was admissible on merits; (ii) Whether the extended period of limitation and penalty could be invoked for non-maintenance of separate accounts.

Issue (i): Whether Cenvat credit on input fuel used in generation of electricity, later used in manufacture of dutiable and exempted goods, was admissible on merits.

Analysis: The issue on admissibility of credit on input fuel had already been settled against the assessee by the Supreme Court and followed by the Tribunal and the Gujarat High Court. On that basis, the liability on merits was held to be in favour of the Revenue.

Conclusion: The issue on merits was decided in favour of the Revenue.

Issue (ii): Whether the extended period of limitation and penalty could be invoked for non-maintenance of separate accounts.

Analysis: The decisive question was whether the assessee was under a statutory obligation to maintain separate accounts for fuel inputs used in generation of electricity during the relevant period. The credit scheme then applicable excluded such fuel inputs from the separate-account requirement, and the Revenue had not specifically challenged the appellate finding that there was no suppression of facts. In that situation, invocation of the extended period and imposition of penalty were not sustainable.

Conclusion: The extended period of limitation and penalty were not invocable, and the assessee succeeded on this issue.

Final Conclusion: The appeal failed because, despite the Revenue succeeding on the merits of credit eligibility, the demand beyond the normal period and the penalty were unsustainable.

Ratio Decidendi: Where the governing credit rules do not require separate accounts for a particular fuel input and there is no established suppression of facts, the extended limitation period and penalty cannot be sustained, even if the assessee loses on the substantive credit issue.

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