Rule 16(1) credit on returned goods allowed where duty was paid on original clearance; demand and penalty were time-barred.

Under Rule 16(1), credit of duty is governed by the duty actually paid at the time of the original removal, so Special Excise Duty remained admissible when the returned goods came back to the factory. The credit could not be denied merely because the goods were exempt when returned, and the denial was unsustainable. On limitation, the assessee had disclosed receipt of the returned goods and filed the relevant returns, so there was no suppression or mala fide intent to justify the extended period. The demand was time-barred and the penalty was not leviable.

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Issues: (i) Whether credit of Special Excise Duty originally paid on cleared goods was admissible on their return to the factory under Rule 16(1). (ii) Whether the demand and penalty were barred by limitation in the absence of suppression or mala fide intent.

Issue (i): Whether credit of Special Excise Duty originally paid on cleared goods was admissible on their return to the factory under Rule 16(1).

Analysis: Rule 16(1) permits credit of the duty actually paid at the time of removal when the goods are subsequently returned to the factory. The relevant test is whether duty had been paid on clearance, not whether such duty was otherwise payable on the date of return. Since Special Excise Duty had been paid when the goods were first cleared, its credit could not be denied merely because the goods were exempt when returned.

Conclusion: Credit of the Special Excise Duty was admissible and the denial was unsustainable.

Issue (ii): Whether the demand and penalty were barred by limitation in the absence of suppression or mala fide intent.

Analysis: The assessee had intimated the department about receipt of the returned goods and had filed the relevant documents. The credit was shown in the prescribed return format, and the absence of separate columns for different duties explained the manner of reporting. On these facts, there was no basis to infer suppression with intent to evade duty, so the extended period could not be invoked.

Conclusion: The demand was time-barred and the penalty was not leviable.

Final Conclusion: The assessee was entitled to the credit claimed, and the duty demand and penalty were set aside.

Ratio Decidendi: Under Rule 16(1), credit is governed by the duty actually paid on the goods at the time of original removal, and limitation cannot be extended without proof of suppression or mala fide intent.

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