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Issues: (i) whether demand could be sustained under Rule 14 of the Cenvat Credit Rules, 2004 when the department did not work out the Cenvat credit attributable to the inputs or capital goods allegedly retained by the job worker and the demand was based on the value of waste or residue; (ii) whether the demand was barred by limitation in the absence of allegations of suppression of facts, wilful misstatement, collusion or fraud to invoke the extended period.
Issue (i): whether demand could be sustained under Rule 14 of the Cenvat Credit Rules, 2004 when the department did not work out the Cenvat credit attributable to the inputs or capital goods allegedly retained by the job worker and the demand was based on the value of waste or residue.
Analysis: Rule 14 applies to recovery of Cenvat credit only to the extent credit is involved in inputs or capital goods. The demand in question was not computed on the basis of credit attributable to identifiable inputs retained by the job worker, but on the value of waste, residue and scrap sent for job work. Where the goods were treated as waste and scrap and the department failed to establish the exact credit involved, the demand could not be sustained under the Cenvat Credit Rules, 2004.
Conclusion: The demand was not sustainable under Rule 14 of the Cenvat Credit Rules, 2004 and this issue was decided in favour of the assessee.
Issue (ii): whether the demand was barred by limitation in the absence of allegations of suppression of facts, wilful misstatement, collusion or fraud to invoke the extended period.
Analysis: The notice covered an earlier period, but it did not contain any allegation of suppression of facts, wilful misstatement, collusion or fraud. In the absence of such foundational averments, the extended period under the proviso to Section 11A(1) of the Central Excise Act, 1944 could not be invoked.
Conclusion: The demand was time barred and this issue was decided in favour of the assessee.
Final Conclusion: The revenue appeal failed on merits and on limitation, and the impugned order setting aside the demand was maintained.
Ratio Decidendi: Recovery under Rule 14 of the Cenvat Credit Rules, 2004 is confined to credit actually involved in inputs or capital goods, and the extended period of limitation cannot be invoked without specific allegations of suppression, wilful misstatement, collusion or fraud.
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