Cenvat credit on duty-paid goods for non-manufacture process upheld; extended limitation and penalty also failed.

Cenvat credit on duty-paid coils received for galvanisation was held admissible under Rule 16 of the Central Excise Rules, 2002, because the goods were received into the factory as duty-paid inputs and the appellant paid an amount equal to the credit taken when the process did not amount to manufacture. The disallowance was therefore unsustainable. The demand also failed on limitation because the department had knowledge of the receipt of goods, credit availment and galvanisation process, so no suppression was established and the extended period under Section 11A could not be invoked. As the demand failed on merits and was time-barred, the penalty under Rule 15(2) and Section 11AC was also unsustainable.

---

---

Issues: (i) whether Cenvat credit taken on duty-paid coils received for galvanisation was admissible where the process did not amount to manufacture; and (ii) whether the demand, limitation and penalty could be sustained.

Issue (i): whether Cenvat credit taken on duty-paid coils received for galvanisation was admissible where the process did not amount to manufacture.

Analysis: Rule 16(1) of the Central Excise Rules, 2002 permits receipt of duty-paid goods into the factory for further processing and allows credit of the duty paid as if the goods were inputs under the Cenvat Credit Rules. Rule 16(2) provides that where the process undertaken does not amount to manufacture, the manufacturer is required to pay an amount equal to the credit taken. In the present case, the goods were duty paid, credit was validly taken, and the appellant paid duty on the galvanised products in excess of the credit availed. The statutory requirement under Rule 16(2) was therefore satisfied, and denial of the entire credit was not justified.

Conclusion: The credit was admissible and the disallowance was unsustainable.

Issue (ii): whether the demand, limitation and penalty could be sustained.

Analysis: The record showed no suppression of facts, as the receipt of goods, availment of credit and galvanisation process were within the department's knowledge. In the absence of suppression, the extended period under the proviso to Section 11A(1) of the Central Excise Act, 1944 could not be invoked. Once the demand itself was unsustainable on merits and limitation, penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 also could not survive.

Conclusion: The demand was time-barred and the penalty was unsustainable.

Final Conclusion: The order of disallowance, demand and penalty was set aside, and the appellant obtained full relief.

Ratio Decidendi: Where duty-paid goods are brought into the factory under Rule 16 and the resultant process is not manufacture, payment of an amount equal to the credit taken satisfies Rule 16(2); in the absence of suppression, the extended limitation and penalty provisions cannot be invoked.

---