Cenvat credit on mixed clearances upheld; disclosure in returns defeated extended limitation and sustained the assessee's claim.

Cenvat credit on inputs and capital goods was held admissible where the assessee lawfully cleared goods under both a nil-rate exemption notification and a concessional-duty notification, and also exported goods under rebate, because the mixed-clearance pattern did not show exclusive use for exempted goods and the credit position was supported by the applicable Board clarification and precedents. The denial of credit was therefore unsustainable. On limitation, the demand arose from an interpretative dispute over the interaction of the notifications and credit rules, the relevant credit was disclosed in returns and rebate proceedings, and there was no suppression with intent to evade duty; the extended period was therefore not invocable. Demand, interest and penalty were set aside.

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Issues: (i) Whether Cenvat credit on inputs and capital goods was admissible when the assessee simultaneously cleared goods under the nil-rate exemption notification and the concessional-duty notification and also exported goods under rebate. (ii) Whether the extended period of limitation could be invoked to deny the credit.

Issue (i): Whether Cenvat credit on inputs and capital goods was admissible when the assessee simultaneously cleared goods under the nil-rate exemption notification and the concessional-duty notification and also exported goods under rebate.

Analysis: The clearance pattern showed that the assessee manufactured and cleared both exempted goods and goods subjected to concessional duty, and the credit related to inputs and capital goods used in that mixed activity. The applicable Board clarification recognised that simultaneous availment of the two notifications was permissible, and that credit could not be denied where the assessee legitimately chose the beneficial notification and maintained the prescribed basis for credit availment. The cited precedents further supported the principle that capital goods cannot be treated as used exclusively for exempted goods merely because one category of clearances was at nil duty, when another category was cleared on duty payment under the other notification.

Conclusion: The Cenvat credit on inputs and capital goods was admissible, and the denial of credit was unsustainable.

Issue (ii): Whether the extended period of limitation could be invoked to deny the credit.

Analysis: The demand itself proceeded on an interpretative dispute regarding the interaction of the exemption notifications and the credit rules. The relevant availment was disclosed in periodic returns, and the credit position had also been examined in the course of rebate processing. In these circumstances, the element of suppression with intent to evade duty was absent.

Conclusion: The extended period of limitation was not invocable.

Final Conclusion: The demand, interest and penalty were set aside, and the assessee succeeded on merits as well as on limitation.

Ratio Decidendi: Where an assessee is lawfully entitled to choose between contemporaneous exemption notifications and the credit position is disclosed, credit cannot be denied on the footing that the goods were exclusively exempted, and an interpretative dispute does not justify invocation of the extended limitation period absent suppression.

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