Cenvat credit reversal on job-work clearances and extended limitation both fail where disclosures are made and suppression is unproved.

Inputs cleared to job workers for conversion into PPCP containers were treated as processing for manufacture, not trading, because the record showed the granules were sent for conversion and then used in battery production. On that basis, reversal of Cenvat credit under Rule 3(5) was not required and the demand on the trading allegation could not be sustained. The extended limitation period was also unavailable because the clearances were disclosed in monthly returns and no suppression, wilful misstatement, or intent to evade duty was established. The demand was therefore unsustainable on merits and limitation, with the assessee granted full relief.

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Issues: (i) Whether the appellant was liable to reverse Cenvat credit on granules cleared to job workers for conversion into PPCP containers, or whether the clearance amounted to trading of goods; (ii) Whether the extended period of limitation could be invoked in the absence of suppression or intent to evade duty.

Issue (i): Whether the appellant was liable to reverse Cenvat credit on granules cleared to job workers for conversion into PPCP containers, or whether the clearance amounted to trading of goods.

Analysis: Under Rule 3(5) of the Cenvat Credit Rules, 2004, credit is required to be reversed when inputs on which credit has been taken are removed as such. The factual record showed that the granules were not sold as traded goods but were sent to job workers only for conversion into PPCP containers, which were thereafter used in the manufacture of batteries. The finding that the goods were cleared for trading purposes was unsupported by the record.

Conclusion: The appellant was not liable to be treated as having effected trading clearances, and the demand on this ground could not be sustained.

Issue (ii): Whether the extended period of limitation could be invoked in the absence of suppression or intent to evade duty.

Analysis: The clearances were disclosed in the monthly returns, and the Department did not establish any suppression of facts or wilful misstatement with intent to evade duty. In the absence of such evidence, invocation of the extended limitation period was not justified.

Conclusion: The extended period of limitation was not invocable, and the demand was barred by limitation.

Final Conclusion: The impugned demand and order were unsustainable on merits as well as on limitation, and the assessee obtained full relief.

Ratio Decidendi: Where inputs are cleared to job workers for conversion and the transaction is duly reflected in returns, a trading allegation cannot be sustained and the extended limitation period cannot be invoked without proof of suppression or intent to evade duty.

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