Extended limitation and proportionate Cenvat reversal defeat excise demand where suppression is unproved and credit is effectively non-availment.

Extended limitation in central excise could not be invoked where the demand was based on ER-1 scrutiny and the Department failed to prove suppression, fraud, wilful misstatement, or intent to evade duty; the demand was therefore time-barred. Proportionate reversal of Cenvat credit on common inputs used for exempted goods was treated as equivalent to non-availment of credit for that exempted portion, so the demand on merits could not survive. The impugned order was set aside and consequential relief followed.

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Issues: (i) Whether the extended period of limitation could be invoked for the demand for the period 01.04.2009 to 31.03.2013. (ii) Whether reversal of proportionate Cenvat credit on common inputs used in the manufacture of exempted goods disentitled the demand on merits.

Issue (i): Whether the extended period of limitation could be invoked for the demand for the period 01.04.2009 to 31.03.2013.

Analysis: The demand was founded on scrutiny of ER-1 returns, with no material showing deliberate suppression, fraud, or wilful misstatement with intent to evade duty. The burden to establish the ingredients for invoking the extended period lay on the Department, and that burden was not discharged. In the absence of evidence of positive suppression, the longer limitation could not be sustained.

Conclusion: The extended period of limitation was not invokable, and the demand for the said period was time-barred.

Issue (ii): Whether reversal of proportionate Cenvat credit on common inputs used in the manufacture of exempted goods disentitled the demand on merits.

Analysis: Once proportionate credit had been reversed, the legal effect was treated as equivalent to non-availment of credit on the inputs attributable to exempted clearances. The settled position applied to common inputs used for dutiable and exempted goods, and proportionate reversal satisfied the requirement of non-availment for the exempted portion.

Conclusion: The demand on merits was unsustainable and liable to be set aside.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Extended limitation in central excise matters cannot be invoked without proof of suppression or equivalent deliberate conduct, and proportionate reversal of Cenvat credit on common inputs is treated as non-availment of such credit for the exempted clearances.

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