FOR supply terms and seller-retained transit risk supported CENVAT credit on outward transport, with limitation and penalty also failing.

FOR or total-cost supply terms, where transit risk remained with the seller and ownership did not pass at the factory gate, outward transportation formed part of the admissible CENVAT credit chain up to the place of removal, so denial of credit was not sustainable. In a dispute turning on contractual interpretation and credit eligibility, the extended period of limitation was also not sustainable on the approach reflected in the Board circular, and the consequential penalty could not survive once the demand failed on merits and limitation. The impugned order was set aside and relief followed on credit, interest, and penalty.

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Issues: (i) Whether CENVAT credit on outward transportation of goods was admissible on the facts of the supply being on FOR/total cost basis and where transit risk remained with the seller; (ii) Whether invocation of the extended period of limitation and consequential penalty was sustainable in a matter involving interpretation of law.

Issue (i): Whether CENVAT credit on outward transportation of goods was admissible on the facts of the supply being on FOR/total cost basis and where transit risk remained with the seller.

Analysis: The purchase orders indicated supply on total cost basis, with rejection possible for defects noticed after delivery, supporting the conclusion that ownership and transit risk did not pass at the factory gate. On that footing, the supply was treated as FOR basis and the outward transportation formed part of the admissible credit chain. The denial of credit was inconsistent with the Board circular and the legal position applied to transport up to the place of removal.

Conclusion: The credit was admissible and the demand on this count was not sustainable.

Issue (ii): Whether invocation of the extended period of limitation and consequential penalty was sustainable in a matter involving interpretation of law.

Analysis: The dispute turned on classification of the transaction and admissibility of credit on the basis of the contractual terms. In such an interpretational setting, the Board circular itself indicated that new show cause notices should not invoke the extended period. The penalty, being consequential to the same demand, could not survive once the demand was not sustainable on merits and limitation.

Conclusion: Invocation of the extended period and the penalty were not sustainable.

Final Conclusion: The impugned order was set aside and the appeal succeeded in full, with the assessee obtaining relief against the credit demand, interest, and penalty.

Ratio Decidendi: Where the contractual terms show FOR/total cost supply with transit risk remaining with the seller, outward transportation credit up to the place of removal cannot be denied; in an interpretational dispute, extended limitation and consequential penalty are not sustainable.

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