2026 (3) TMI 909 - AT - Central Excise

Limitation bars retrospective duty claims where no suppression or recovery mechanism exists, nullifying demand and penalties.

Demand under Rule 3(5A) for 17.03.2012-27.09.2013 was held time barred because extended limitation was not justified by any evidence of suppression with ... Validity of time barred demand duty under Rule 3(5A) of the Cenvat Credit Rules, 2004 - limitation - absence of a recovery mechanism for amounts payable under Rule 3(5A) during the relevant period - extended period of limitation - bona fide belief. Limitation of demand - HELD THAT:- The Tribunal held that the show cause notice issued on the basis of audit for the period 17.03.2012 to 27.09.2013 was time-barred. It found no material to establish suppression with intent to evade duty and observed that extended period of limitation cannot be invoked merely because the matter arose from an audit; further authorities were relied upon to that effect. Consequently the entire demand was held to be barred by limitation. [Paras 6] The demand is barred by limitation. Non-existence of statutory recovery mechanism precludes demand, interest and penalty - HELD THAT: - The Tribunal found that during the period in question there was no statutory mechanism to recover amounts payable under Rule 3(5A) of the Cenvat Credit Rules and that the recovery provision for wrongly availed credit was inserted later. In the absence of a recovery mechanism the demand could not be sustained; once the demand failed on merits, interest and penalty also could not be imposed. The Tribunal noted that the case was covered by a preceding Tribunal in the case of M/s Prism Johnson Ltd [2019 (7) TMI 780 - CESTAT NEW DELHI], where similar demands were set aside on merits and limitation, and followed that ratio. [Paras 7, 8] The demand cannot be sustained on merits; interest and penalty do not survive. Final Conclusion: The impugned order is set aside; the appeal is allowed on the grounds of limitation and absence of a recovery mechanism, and consequential interest and penalty are quashed. Issues: (i) Whether the demand for duty under Rule 3(5A) of the Cenvat Credit Rules, 2004 for the period 17.03.2012 to 27.09.2013 is barred by limitation; (ii) Whether the demand (including interest and penalty) can be sustained on merits in the absence of a recovery mechanism for amounts payable under Rule 3(5A) during the relevant period.Issue (i): Whether the demand is barred by limitation.Analysis: The period in dispute is 17.03.2012 to 27.09.2013 and the show cause notice was issued on 31.03.2017 based on audit objections and figures from returns. The department did not produce evidence of suppression with intent to evade payment of duty. Reliance is placed on precedents holding that extended period of limitation cannot be invoked solely on the basis of audit where returns were filed and no suppression is shown. The appellant's bona fide belief regarding non-liability for clearance as waste/scrap during the relevant period is noted.Conclusion: The demand is barred by limitation and cannot be sustained on the ground of extended limitation.Issue (ii): Whether the demand, interest and penalty are sustainable on merits given the absence of a recovery mechanism for amounts payable under Rule 3(5A) during the relevant period.Analysis: During the relevant period there was no statutory mechanism to recover amounts payable under Rule 3(5A); a recovery provision was introduced later (2014). In the absence of a recovery mechanism for the period in question, the substantive demand cannot be enforced. If the substantive demand is unsustainable, consequential interest and penalty lack a basis. The decision of a coordinate bench in Prism Johnson Ltd on similar facts is treated as applicable.Conclusion: The demand is unsustainable on merits for lack of a recovery mechanism; consequential interest and penalty also do not survive.Final Conclusion: The impugned order is set aside on both limitation and merits and the appeal is allowed, resulting in cancellation of the confirmed demand, interest and penalty.Ratio Decidendi: Where a duty demand for a past period is issued based solely on audit objections without evidence of suppression and where no statutory recovery mechanism existed for that period, extended limitation cannot be invoked and the substantive demand (and consequential interest and penalty) cannot be sustained.