Rule 16(2) duty on returned excisable goods requires Cenvat-equivalent payment, while extended limitation fails absent suppression.

Returned duty-paid motor vehicles re-entered after testing without any process amounting to manufacture attracted Rule 16(2) liability to pay duty equivalent to the Cenvat credit originally taken, so payment on transaction value was insufficient and the differential duty was sustainable on merits. The demand for the earlier part of the period was time-barred because the assessee had filed periodic returns and the dispute concerned interpretation of Rule 16 rather than suppression or mala fide evasion. The reduced penalty was maintained and not interfered with, resulting in only partial allowance of the appeal.

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Issues: (i) Whether, on re-entry of duty-paid motor vehicles after testing, the appellant was liable under Rule 16(2) of the Central Excise Rules, 2002 to pay duty equal to the Cenvat credit availed, instead of duty on transaction value; (ii) whether the demand for the earlier part of the period was barred by limitation and the penalty could be sustained.

Issue (i): Whether, on re-entry of duty-paid motor vehicles after testing, the appellant was liable under Rule 16(2) of the Central Excise Rules, 2002 to pay duty equal to the Cenvat credit availed, instead of duty on transaction value.

Analysis: The returned vehicles were not subjected to any process amounting to manufacture. In such a case, Rule 16(2) requires payment of duty equivalent to the Cenvat credit taken at the time of re-entry into the factory. Since the appellant discharged duty on transaction value, which was lower than the Cenvat credit availed, the differential duty was payable.

Conclusion: The differential duty demand was sustainable on merits against the assessee.

Issue (ii): Whether the demand for the earlier part of the period was barred by limitation and the penalty could be sustained.

Analysis: The appellant had been filing periodical returns disclosing the duty position, and the issue turned on interpretation of Rule 16 rather than mala fide evasion. For that reason, the demand for the period prior to the relevant limitation cut-off was time-barred. The penalty of Rs. 25,000, having already been upheld in the connected appeal and not further challenged, could not be interfered with.

Conclusion: The demand was barred by limitation for the earlier period, but the reduced penalty was maintained.

Final Conclusion: The demand was upheld only to the extent not barred by limitation, while the reduced penalty remained intact, resulting in a partial allowance of the appeal.

Ratio Decidendi: Where returned excisable goods are not subjected to a process amounting to manufacture, Rule 16(2) fastens liability to pay duty equivalent to the Cenvat credit taken on re-entry, but the extended period cannot be invoked in the absence of suppression or mala fide intent.

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