Job-work manufacture and CENVAT credit: verified input credit allowed, extended limitation upheld for suppression, penalties reduced.

Job-work manufacture of a distinct excisable product entitled the assessee to have eligible CENVAT credit on duty-paid inputs considered at the stage of quantification, subject to verification of supporting documents and compliance with credit rules. Suppression of the job-work activity from returns, inconsistent descriptions of the work, and non-disclosure until audit objection were treated as suppression of facts with intent to evade duty, justifying invocation of the extended limitation period. On that footing, the penalty and confiscation framework survived, but the quantum of penalties was reduced. Eligibility for refund of service tax paid on the same activity was also recognized in accordance with law.

---

---

Issues: (i) whether CENVAT credit on inputs used in job-work manufacture could be allowed for adjustment against the duty demand, (ii) whether the extended period of limitation was invokable, and (iii) whether the penalties and related confiscation consequences were sustainable.

Issue (i): whether CENVAT credit on inputs used in job-work manufacture could be allowed for adjustment against the duty demand.

Analysis: The job-work activity resulted in manufacture of a distinct marketable product, and the manufacturer could claim credit on duty-paid inputs subject to verification of the documents and compliance with the credit rules. The denial of credit merely because verification had not been completed at the time of adjudication was not upheld. The demand confirmed under the excise provisions could be adjusted by eligible credit, and the matter of quantum required remand for verification of the supporting duty-paying documents.

Conclusion: The issue is decided in favour of the assessee, and eligible CENVAT credit is to be allowed after verification.

Issue (ii): whether the extended period of limitation was invokable.

Analysis: The record showed that the job-work activity was not disclosed in the returns or otherwise, the appellants described the work inconsistently, and the true nature of manufacture was not communicated to the department until audit objection. These circumstances were treated as suppression of facts with intent to evade duty, justifying invocation of the longer limitation period.

Conclusion: The issue is decided in favour of the Revenue, and the extended period was validly invoked.

Issue (iii): whether the penalties and related confiscation consequences were sustainable.

Analysis: Since the duty demand and limitation finding were sustained, liability to penalty followed. At the same time, the penalties were considered excessive and were reduced. The confiscation and fine consequences were maintained in principle, while the quantum of personal and connected penalties was modified.

Conclusion: The issue is decided partly in favour of the Revenue and partly in favour of the assessee, with penalties reduced.

Final Conclusion: The duty demand stands subject to adjustment of verified eligible credit, the extended period is upheld, the penalty framework survives with reduced quantum, and the eligibility for refund of service tax paid on the same activity is recognized in accordance with law.

Ratio Decidendi: Where job-work activity amounts to manufacture of excisable goods, eligible CENVAT credit on duty-paid inputs must be considered at the stage of quantification, but deliberate non-disclosure of the true activity and failure to reflect it in returns justifies invocation of the extended period and consequent penalty.

---