Limitation and benefit of doubt defeated recovery of proforma credit where the department failed to rebut excess production explanation.

Recovery of proforma credit under Rule 56A for the pre-amendment period was held subject to the applicable limitation for recovery proceedings, so a show-cause notice issued about six months after the shortage was intimated and verified was time-barred. The demand for Rs. 63,900 and the penalty of Rs. 250 were also found unsustainable because the assessee's explanation that the alleged shortage of Rock Phosphate had been consumed in excess Super Phosphate production was not rebutted, and the department made no contrary investigation. On that basis, the assessee received the benefit of doubt and the recovery and penalty were set aside.

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Issues: (i) Whether the demand for recovery of proforma credit was barred by limitation. (ii) Whether the demand of Rs. 63,900 and the penalty of Rs. 250 were sustainable in law.

Issue (i): Whether the demand for recovery of proforma credit was barred by limitation.

Analysis: The shortage of Rock Phosphate was intimated by the appellants, verified by the officers, and the show-cause notice was issued after about six months. For recoveries of credit wrongly availed under Rule 56A for the relevant pre-amendment period, the time-limit applicable to recovery proceedings was held to govern such action, and the amended notification was treated as not excluding limitation for past periods.

Conclusion: Yes. The demand was barred by limitation.

Issue (ii): Whether the demand of Rs. 63,900 and the penalty of Rs. 250 were sustainable in law.

Analysis: The appellants' explanation was that the alleged shortage of Rock Phosphate had been consumed in the manufacture of excess Super Phosphate. That excess production was not disputed by the department, and no contrary investigation was made to displace the explanation. In these circumstances, the appellants were entitled to the benefit of doubt.

Conclusion: No. The demand and penalty were not sustainable.

Final Conclusion: The recovery and penalty were set aside, and the appeal succeeded in full.

Ratio Decidendi: Recovery of proforma credit under Rule 56A for the relevant pre-amendment period is subject to the applicable limitation for recovery proceedings, and where the department fails to rebut a plausible explanation supported by undisputed excess production, the benefit of doubt must go to the assessee.

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