CENVAT credit reversal on written-off inventory fails where credit was not taken and suppression for extended limitation is absent.

Demand for reversal of CENVAT credit on written-off inventory was found unsustainable where trading stock had never attracted credit, manufacturing stock had already been reversed, and finished goods were cleared on duty with audited records supporting the assessee's position. The note also records that the extended period of limitation could not be invoked because the assessee regularly paid duty and filed returns, had informed the department of the reversal, and no suppression, misdeclaration, fraud, or intent to evade duty was shown. On these grounds, the duty demand was set aside with consequential relief.

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Issues: (i) whether the demand for reversal of CENVAT credit on inventory written off was sustainable on merits; and (ii) whether the extended period of limitation could be invoked.

Issue (i): whether the demand for reversal of CENVAT credit on inventory written off was sustainable on merits.

Analysis: The appellant maintained separate manufacturing and trading divisions and kept distinct records for the inventories. In respect of trading inventory, no CENVAT credit had been availed, so no reversal could be demanded. As regards manufacturing inventory, the appellant had already reversed the applicable credit and, where finished goods were subsequently cleared, paid duty in the ordinary course. The records and audited accounts supported the appellant's version, and there was no valid basis to disregard those accounts. The cited board clarification also supported the position that no further reversal was warranted where the inputs remained capable of use or had already been dealt with in the credit records.

Conclusion: The demand failed on merits and was not sustainable against the assessee.

Issue (ii): whether the extended period of limitation could be invoked.

Analysis: The appellant was regularly paying duty and filing returns. The reversal relating to manufacturing inventory had been intimated to the department by letter, and the case itself arose from an audit objection. No material was shown to establish suppression, misdeclaration, fraud, or intent to evade duty. On these facts, the conditions for invoking the extended period were not satisfied.

Conclusion: The extended period of limitation was not invocable.

Final Conclusion: The appeal succeeded both on limitation and on merits, and the duty demand was set aside with consequential relief.

Ratio Decidendi: Extended limitation cannot be invoked in the absence of ation of suppression or fraud, and a credit demand on written-off inventory must rest on proved availing of credit and legally sustainable grounds, not merely on audit objection or unsupported disregard of audited records.

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