Duty-paid input set-off through an intermediate product was allowed; extended limitation failed absent suppression of facts.

Duty-paid inputs qualified for set-off under Notification No. 201/79-C.E. even though they were first used in an intermediate resin before reaching the finished goods, because the notification did not require direct incorporation into the final product and the declared utilisation disclosed no wrongful credit. The extended period of limitation was unavailable because the assessee's declarations and monthly returns gave the Department the relevant facts, with no suppression or wilful misstatement shown. The demand was therefore unsustainable and consequential relief followed.

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Issues: (i) Whether the assessee was entitled to the benefit of Notification No. 201/79-C.E. where the duty-paid input was used in an intermediate product and the credit was ultimately utilised for payment of duty on the finished goods; (ii) Whether the extended period of limitation could be invoked on the facts of the case.

Issue (i): Whether the assessee was entitled to the benefit of Notification No. 201/79-C.E. where the duty-paid input was used in an intermediate product and the credit was ultimately utilised for payment of duty on the finished goods.

Analysis: The notification did not require that the input must go directly into the final product or form an integral part of it. The material showed that the declared input was used in the manufacture of an intermediate resin, and that resin was in turn used in the manufacture of the final products. The Department had notice of the assessee's declarations and should have sought clarification if the utilisation pattern was considered doubtful. The record also showed that there was no excess or wrongful availing of credit, but only a technical error in the manner of utilisation.

Conclusion: The assessee was entitled to the benefit of the notification, and the demand based on alleged improper utilisation of credit was unsustainable.

Issue (ii): Whether the extended period of limitation could be invoked on the facts of the case.

Analysis: The declarations filed by the assessee disclosed the relevant raw materials and finished goods, and the Department had access to the monthly returns and supporting documents. On that material, there was no basis to infer suppression of facts or wilful misstatement. The Department was expected to scrutinise the claim and verify the correctness of credit utilisation instead of invoking the extended period.

Conclusion: The extended period of limitation was not available to the Department.

Final Conclusion: The appeal succeeded, the demand order was set aside, and the assessee was granted consequential relief.

Ratio Decidendi: For the purpose of the notification, duty-paid inputs may qualify for set-off even when used through an intermediate product in the manufacturing chain, and the extended limitation period cannot be invoked absent suppression of facts or wilful misstatement when the relevant declarations and returns were disclosed to the Department.

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