Cenvat credit reversal treated as non-availment, defeating excise duty demand and extended-period invocation, with limited remand for common inputs.
Reversal of Cenvat credit attributable to exempted inputs is treated as non-availment, so excise duty demands based on full denial of credit could not be sustained on the facts recorded. The extended-period demand was also rejected because regular returns were filed and suppression was not established. However, proportionate reversal relating to common inputs still required verification under the prescribed method, so the matter was remanded only for limited quantification for the normal period.
Issues: (i) Whether the demand of excise duty could be sustained where Cenvat credit on inputs used in exempted goods had been reversed or foregone and only limited credit on common inputs had been availed. (ii) Whether the demand for the extended period was sustainable. (iii) Whether the matter required remand for fresh quantification of the credit to be reversed on common inputs.
Issue (i): Whether the demand of excise duty could be sustained where Cenvat credit on inputs used in exempted goods had been reversed or foregone and only limited credit on common inputs had been availed.
Analysis: The governing principle applied was that reversal of credit is treated as non-availment of credit. On the factual record, the exempted-goods inputs were identified and the credit attributable to them was not availed, while the dispute was confined to a limited amount of credit on common inputs. In view of the cited precedents, the confirmed demands based on full denial of exemption or on the higher differential duty could not be sustained on the facts found.
Conclusion: The confirmed demands were not legally sustainable to that extent and were set aside, subject to verification of the credit relatable to common inputs.
Issue (ii): Whether the demand for the extended period was sustainable.
Analysis: The assessee had been filing regular returns, and the record reflected verification by the departmental officer of the non-availment of credit on exempted clearances. In those circumstances, suppression was not established to justify invocation of the extended period.
Conclusion: The demand for the extended period was held to be time-barred and was set aside.
Issue (iii): Whether the matter required remand for fresh quantification of the credit to be reversed on common inputs.
Analysis: Although the major demands were set aside, the exact proportionate reversal on common inputs required working out under the prescribed procedure by taking into account turnover and credit figures.
Conclusion: The matter was remanded for limited quantification of the reversable credit on common inputs for the normal period only.
Final Conclusion: The larger duty demands were set aside, the extended-period demand was rejected as barred by limitation, and the remaining dispute was sent back only for working out any balance credit reversal on common inputs under the prescribed rules.
Ratio Decidendi: Where credit attributable to exempted inputs is reversed, it is treated as never having been taken, and a demand cannot be sustained merely because procedural compliance under the credit-reversal mechanism was imperfect; however, proportionate reversal for common inputs may still be verified under the prescribed method.
TaxTMI 
AI Drafter ✕
TaxTMI 
