CENVAT credit denial requires proof beyond balance-sheet discrepancies, and later rules cannot govern earlier MODVAT transactions.

CENVAT/MODVAT credit cannot be denied merely because balance-sheet figures differ from RG-23A Part I or because shortages were noticed later, unless there is cogent evidence of non-receipt, non-consumption, or clandestine removal of inputs; on the record, the denial of credit was unsustainable. The extended limitation period also could not be invoked where returns were regularly filed, audits were periodic, and suppression with intent to evade duty was not established. Proceedings under Rule 12 of the CENVAT Credit Rules, 2001 were jurisdictionally unsustainable for credit availed under the earlier MODVAT regime, because the later provision could not be applied retrospectively to earlier transactions.

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Issues: (i) whether CENVAT credit / MODVAT credit could be denied on the basis of discrepancies between balance-sheet figures, RG-23A Part I and alleged shortage found during the later visit, in the absence of cogent evidence of non-receipt, non-consumption or clandestine removal of inputs; (ii) whether the extended period of limitation could be invoked; and (iii) whether proceedings could be sustained under Rule 12 of the CENVAT Credit Rules, 2001 for a period when the credit availed was MODVAT credit governed by the Central Excise Rules, 1944.

Issue (i): whether CENVAT credit / MODVAT credit could be denied on the basis of discrepancies between balance-sheet figures, RG-23A Part I and alleged shortage found during the later visit, in the absence of cogent evidence of non-receipt, non-consumption or clandestine removal of inputs?

Analysis: The dispute was confined by the earlier remand order to reconciliation of figures and to testing whether the allegation could survive without evidence of suppression or clandestine removal. The later adjudication was found to have travelled beyond that remit and relied on shortages noticed during a later visit to sustain an allegation for earlier years. The balance sheet entries, by themselves, were held not to be sufficient proof of fraudulent availment of credit. No concrete evidence was shown that the inputs were not procured, were not consumed in manufacture, or were clandestinely removed. The attempts to reconcile figures were also treated as contemporaneous explanations rather than post-detection manipulation.

Conclusion: The denial of credit on merits was not sustainable and the finding went in favour of the assessee.

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

Analysis: The records showed regular filing of returns, periodic audit, and contemporaneous entries made before investigation. In that situation, suppression with intent to evade duty was not established. The remand directions had specifically required examination of limitation, but the impugned order did not demonstrate the ingredients necessary for invoking the extended period.

Conclusion: The extended period was not invocable and the finding went in favour of the assessee.

Issue (iii): whether proceedings could be sustained under Rule 12 of the CENVAT Credit Rules, 2001 for a period when the credit availed was MODVAT credit governed by the Central Excise Rules, 1944?

Analysis: The credit in dispute related to the earlier MODVAT regime. If any demand was to be pursued for that period, it had to rest on the provisions applicable at that time. The later CENVAT provisions could not be used to penalize conduct occurring when those provisions were not in force. The objection was treated as a pure question of law and was held to be maintainable at the appellate stage.

Conclusion: The proceedings were jurisdictionally unsustainable to that extent and the finding went in favour of the assessee.

Final Conclusion: The impugned order failed on merits, on limitation and on the legal basis invoked for recovery, so the assessee's appeals succeeded.

Ratio Decidendi: CENVAT or MODVAT credit cannot be denied merely on balance-sheet discrepancies without cogent evidence of non-receipt, non-consumption or clandestine removal, and a later enactment cannot be retrospectively used to recover credit pertaining to an earlier regime.

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