CENVAT credit reversal before notice defeats recovery, extended limitation, and penalty where the Department was informed.

Section 73(3) of the Finance Act, 1994 bars recovery notice where an assessee reverses the liability and informs the Department before notice, and the CENVAT Credit Rules, 2004 provisions were read consistently with that protection. Because the disputed CENVAT credit had already been reversed after audit objection, the notice itself recorded repayment and sufficient balance in the credit account, indicating the amount had not been utilised. On that basis, invocation of the extended period and the equal penalty were not sustainable, and the proposed recovery could not proceed.

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Issues: Whether recovery of inadmissible CENVAT credit, along with equal penalty and invocation of the extended period, was sustainable when the credit had already been reversed and the Department was informed before issuance of the notice.

Analysis: Section 73(3) of the Finance Act, 1994 bars issuance of a recovery notice under Section 73(1) where the assessee, on being pointed out or on its own ascertainment, discharges the liability and informs the Department. The provisions relating to recovery of CENVAT credit, including Rule 14 and Rule 15(3) of the CENVAT Credit Rules, 2004, were applied in harmony with that statutory protection. The notice itself recorded that the disputed amount had been repaid after audit objection and that sufficient credit balance remained in the account, supporting the position that the amount had not been utilised. In those circumstances, invocation of the extended period and the penal demand could not be sustained.

Conclusion: The notice and the consequent recovery and penalty were held unsustainable in law, and the assessee succeeded.

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