Unlawful credit utilisation and limitation: departmental knowledge must be shown, while conditional credit relief may prevent double duty.

Unlawful credit utilisation was held not to be protected by limitation merely because RT-12 returns and RG-23A records had been filed; actual departmental knowledge of the disputed utilisation had to be shown, and that plea failed. The duty demand was sustained. However, to prevent double payment, corresponding credit in RG-23A Part II was allowed conditionally, subject to verification by the Assistant Collector that the same inputs had supported the relevant clearances. Penalty was imposed for the admitted breach of the credit-utilisation rule, but it was substantially reduced having regard to the facts and circumstances.

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Issues: (i) whether the show-cause notice was barred by limitation on the ground that the department had knowledge of the disputed utilisation of credit from the records filed by the assessee; (ii) whether, if duty demand was sustained, the assessee was entitled to corresponding credit in RG-23A Part II to avoid double payment of duty, and what penalty was in the circumstances.

Issue (i): whether the show-cause notice was barred by limitation on the ground that the department had knowledge of the disputed utilisation of credit from the records filed by the assessee.

Analysis: The assessee's plea of departmental knowledge based on RT-12 returns and RG-23A records was not accepted, as no specific return or record was produced to verify that contention. The disputed utilisation of credit contrary to the declared input use was therefore not shown to be within the department's admitted knowledge for limitation purposes.

Conclusion: The plea of time bar failed and the demand was not held to be barred by limitation.

Issue (ii): whether, if duty demand was sustained, the assessee was entitled to corresponding credit in RG-23A Part II to avoid double payment of duty, and what penalty was in the circumstances.

Analysis: The demand, if enforced without a corresponding credit adjustment, could result in double payment of duty on copper cathodes if the same quantity of zinc had in fact been used in the manufacture of brass sheets and brass circles. The matter required verification by the lower authority, and conditional credit was permitted accordingly. On penalty, the admitted breach of the credit-utilisation rule justified penalty, but the amount was reduced having regard to the facts and circumstances.

Conclusion: The assessee was allowed conditional credit adjustment in RG-23A Part II, subject to verification by the Assistant Collector, and the penalty was reduced to Rs. 2.5 lakhs.

Final Conclusion: The demand was sustained, but the assessee obtained conditional credit relief and substantial reduction in penalty, resulting in a partial relief only.

Ratio Decidendi: Where unlawful credit utilisation is established, limitation will not fail merely because returns were filed unless actual departmental knowledge is shown, and relief against double recovery may be granted only on verification that the same inputs supported the corresponding duty-paid clearances.

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