Cenvat credit removal of capital goods and limitation grounds defeated duty demand where prior credit was not proved.

Duty on removal of used brass tubes as capital goods was not sustainable because the Department did not specifically prove that Cenvat credit had been availed on the goods removed during the relevant period, and the clearances were recorded in the ordinary books of account. The demand also failed on limitation, as the show cause notices did not establish a proper factual basis for invoking the extended period and no clear suppression or misstatement was shown. On both merits and limitation, the demand and related penalty were set aside, with consequential relief.

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Issues: (i) whether duty was payable on removal of used brass tubes as capital goods during the relevant period, and (ii) whether the demand was barred by limitation.

Issue (i): Whether duty was payable on removal of used brass tubes as capital goods during the relevant period.

Analysis: The demand rested on the premise that credit had been taken on the brass tubes at the time of acquisition and that their clearance for job work without following the prescribed procedure attracted duty. The record, however, did not contain a categorical allegation or proof that Cenvat credit had in fact been availed on the particular tubes removed during the relevant years. The transaction was also reflected in the regular books of account. The condition precedent for applying the credit reversal or duty liability provisions relating to removal of capital goods was therefore not established.

Conclusion: The duty demand on merits was not sustainable and this issue was decided in favour of the assessee.

Issue (ii): Whether the demand was barred by limitation.

Analysis: The show cause notices were held to be vague on the essential factual foundation for invoking the extended period, particularly because they did not specifically establish credit availed on the goods removed in a particular financial year. Since the relevant clearances were recorded in the ordinary course of business and no clear suppression or misstatement was proved, the extended period could not be invoked.

Conclusion: The demand was hit by limitation and this issue was decided in favour of the assessee.

Final Conclusion: The appeals succeeded, the duty and penalty demands were set aside, and consequential relief was granted.

Ratio Decidendi: Where the Department fails to specifically prove prior availment of credit on the capital goods removed and the show cause notice is vague on the factual basis for invoking the extended period, the demand and related penalty cannot be sustained.

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