CENVAT credit reversal on transfer of used capital goods to sister units fails without suppression and remains revenue neutral.

Clearance of used capital goods to sister units was treated as unsustainable for duty demand and CENVAT credit reversal where the department was already aware of the practice, the show cause notices did not allege suppression with intent to evade duty, and the transfers were for manufacture with no misuse or diversion shown. The prior appellate finding that the original demand formulation was unsustainable also meant later proceedings could not cure the missing allegation. In these circumstances, the matter was regarded as revenue neutral and the extended limitation period was not available.

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Issues: Whether the demand of duty / reversal of CENVAT credit on clearance of used capital goods to sister units was sustainable, and whether the extended period could be invoked in the absence of suppression of facts.

Analysis: The appellants cleared moulds, being used capital goods, to sister units and the department was aware of this practice. The show cause notices did not allege suppression of facts with intent to evade duty. The Tribunal also noted that the earlier appellate order had found the original demand formulation unsustainable and that the subsequent proceedings could not cure the absence of such allegation. Since the goods were transferred to sister units for manufacture and there was no allegation of misuse or diversion, the situation was revenue neutral.

Conclusion: The demand was held unsustainable and the invocation of the extended period was not justified; the appeals were allowed.

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