CENVAT credit reversal on inputs cleared as such cannot be demanded when duty paid exceeds the credit and facts were disclosed.

Where inputs were cleared as such and duty on the transaction value exceeded the CENVAT credit attributable to them, a demand for non-reversal of SAD-linked credit was not sustainable because no revenue loss was shown; the Tribunal therefore rejected the demand on merits. As the ER-1 returns and invoices disclosed the clearances, suppression or wilful misstatement was not established, so the extended period of limitation could not be invoked. For the same reason, the connected penalties on the appellant and co-appellants also failed.

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Issues: (i) Whether the demand and penalty for non-reversal of CENVAT credit attributable to SAD on inputs cleared as such were sustainable when the clearances were made on payment of duty on transaction value. (ii) Whether the extended period of limitation could be invoked and penalties sustained in the absence of suppression or wilful misstatement.

Issue (i): Whether the demand and penalty for non-reversal of CENVAT credit attributable to SAD on inputs cleared as such were sustainable when the clearances were made on payment of duty on transaction value.

Analysis: The liability under Rule 3(5) of the CENVAT Credit Rules, 2004 is to pay an amount equal to the credit availed when inputs are removed as such. The records showed that the appellant cleared the inputs as such and paid duty on the sale value, which was higher than the credit sought to be reversed. On those facts, the Tribunal found no revenue loss and held that the department could not sustain the demand merely on the ground that the SAD component was not separately reflected or reversed.

Conclusion: The demand on merits was not sustainable and was decided in favour of the assessee.

Issue (ii): Whether the extended period of limitation could be invoked and penalties sustained in the absence of suppression or wilful misstatement.

Analysis: The ER-1 returns and invoices disclosed that the goods were cleared as such, and the relevant facts were available to the department. In that background, the allegation of suppression and misstatement was held to be untenable. Once the extended period failed, the connected penalties imposed on the main appellant and co-appellants also could not survive.

Conclusion: The extended period of limitation and the penalties were not sustainable and were decided in favour of the assessee.

Final Conclusion: The appeals succeeded, the impugned order was set aside, and the consequential penalty orders also fell.

Ratio Decidendi: Where inputs are cleared as such and the duty paid on their sale value is higher than the CENVAT credit attributable to such inputs, no sustainable demand arises merely for non-separate reversal of SAD credit, and in the absence of disclosure suppression, the extended period and penalties cannot be invoked.

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