CENVAT credit and extended limitation: credit on furnace oil was denied, while the extended-period demand failed without a suppression finding.

CENVAT credit on furnace oil used to generate steam for both dutiable and exempted goods was held inadmissible to the extent attributable to exempted production under Rule 6, and the merits were decided against the assessee. On limitation, the extended period could not be sustained because the penalty under Section 11AC had been dropped, no separate basis for extended limitation was recorded, and the Revenue had not challenged the penalty finding. The demand was therefore confined to the normal period, the extended-period demand was set aside, and the matter was remanded for fresh quantification of duty and interest for the surviving period.

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Issues: (i) Whether CENVAT credit on furnace oil used as fuel for generation of steam in the manufacture of both dutiable and exempted goods was admissible. (ii) Whether the demand for the extended period could be sustained when the penalty under Section 11AC was dropped and no finding on extended limitation was recorded.

Issue (i): Whether CENVAT credit on furnace oil used as fuel for generation of steam in the manufacture of both dutiable and exempted goods was admissible.

Analysis: The credit dispute arose under Rule 6 of the CENVAT Credit Rules, under which credit attributable to exempted production could not be retained. The Tribunal noted that the issue on merits stood covered against the appellant in view of the Gujarat High Court decision relied upon by the Revenue.

Conclusion: The issue was decided against the assessee.

Issue (ii): Whether the demand for the extended period could be sustained when the penalty under Section 11AC was dropped and no finding on extended limitation was recorded.

Analysis: The Commissioner (Appeals) had dropped the penalty under Section 11AC, and no appeal was filed by the Revenue against that finding. No separate finding was recorded to justify invocation of the extended period. Applying the settled view that extended limitation is not available where penalty for suppression is not sustained, the Tribunal held that the demand for the extended period could not survive.

Conclusion: The issue was decided in favour of the assessee; the demand for the extended period was set aside.

Final Conclusion: The demand was sustained only for the normal period, while the extended-period demand was annulled and the matter was sent back for fresh quantification of duty and interest for the surviving period.

Ratio Decidendi: Where the adjudicating authority drops penalty under Section 11AC and records no basis for invoking the extended period, the demand beyond the normal limitation period cannot be sustained.

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