Cenvat credit reversal and scrap-clearance duty dispute resolved on evidentiary findings, cum-duty treatment, and modified penalties.

A demand for reversal of Cenvat credit based only on a presumption that the assessee was not manufacturing goods was unsustainable where port samples showed the goods to be casting/forging. Goods destroyed and sold as scrap were treated on a cum-duty basis, and duty already paid on the realised consideration was appropriated against the demand. The conceded Cenvat credit amount was confirmed. Penalties were modified by allowing the option to pay 25% of the duty confirmed within one month, while the personal penalty on the Managing Director was reduced.

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Issues: (i) whether the demand for reversal of Cenvat credit of Rs. 7,73,34,545 was sustainable on the allegation that the assessee was not manufacturing the goods during the relevant period; (ii) whether duty was payable on goods worth Rs. 58,11,850 sold as scrap for Rs. 35 lakhs after partial duty payment; (iii) whether the conceded Cenvat credit of Rs. 4,44,410 was liable to be confirmed; and (iv) whether the penalties required modification.

Issue (i): Whether the demand for reversal of Cenvat credit of Rs. 7,73,34,545 was sustainable on the allegation that the assessee was not manufacturing the goods during the relevant period.

Analysis: The demand rested on a foreign customs report indicating scrap, but the samples drawn from the containers at port showed the goods to be casting/forging. On that basis, the finding that the assessee was not manufacturing the goods was held to be unsupported and based only on assumption and presumption.

Conclusion: The demand for reversal of Cenvat credit of Rs. 7,73,34,545 was rightly dropped and the Revenue's appeal on this issue failed.

Issue (ii): Whether duty was payable on goods worth Rs. 58,11,850 sold as scrap for Rs. 35 lakhs after partial duty payment.

Analysis: The goods were destroyed and sold as scrap, and duty of Rs. 5,71,200 had already been paid. The sale value of Rs. 35 lakhs was treated as a cum-duty price, so the duty discharged was held to be proper and the amount paid was liable to be appropriated against the demand.

Conclusion: The duty demand stood confined in the manner recorded by the adjudicating authority, with the amount already paid to be appropriated, and no further interference was warranted on this aspect.

Issue (iii): Whether the conceded Cenvat credit of Rs. 4,44,410 was liable to be confirmed.

Analysis: The assessee conceded the credit dispute on this amount.

Conclusion: The demand of Rs. 4,44,410 was confirmed.

Issue (iv): Whether the penalties required modification.

Analysis: Since reduced penalty was not granted at the adjudication stage, the assessee was given the option to pay 25% of the duty confirmed within one month, failing which the full penalty would become payable. The personal penalty on the Managing Director was also reduced.

Conclusion: The assessee was granted the option of reduced penalty, and the personal penalty was reduced to Rs. 25,000.

Final Conclusion: The demand for reversal of the large Cenvat credit was set aside, the conceded credit demand was sustained, the scrap-clearance duty was treated on a cum-duty basis, and the penalties were modified, resulting in a partial allowance of the connected appeals.

Ratio Decidendi: A demand based only on a presumptive finding that the assessee was not manufacturing goods cannot survive where the record shows the goods to be manufactured products, and a sale treated as scrap may be assessed on a cum-duty basis when duty has already been discharged on the realised consideration.

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