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2026 (6) TMI 1150 - CESTAT KOLKATA Central Excise

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Physical receipt requirement for CENVAT credit controls where invoices and book entries do not prove actual input receipt.
CENVAT credit was treated as unavailable where the inputs were not physically received in the factory and the supplier had not manufactured or cleared the goods. The analysis applied Rule 4(1) of the CENVAT Credit Rules, 2004 to hold that actual receipt of inputs is a mandatory condition for credit, and Rule 4(5) to place the burden of proving admissibility on the manufacturer. Credit claimed only through invoices, RG-23 records and book entries was found insufficient because the transactions were fictitious paper transactions. The precedent relied on for receipt disputes was distinguished on the basis that this matter involved non-manufacture and non-supply. The remand approach was rejected and the denial of credit, with consequential liability, was upheld.

CENVAT credit on non-received inputs - Paper transactions through duty-paid invoices - Physical receipt of inputs as condition for credit - Penalty for fraudulent availment of CENVAT credit Availment of CENVAT credit on waste and scrap - HELD THAT: - In terms of Rule 4(1) of the CENVAT Credit Rules, 2004, CENVAT Credit of inputs, to be used in the manufacture of final product is allowable to the manufacturer only on physical receipt of the goods along with invoices in the factory of the manufacturer. Moreover, a burden of proof is cast upon the manufacturer availing such credit, to establish the admissibility of such credit, in terms of Rule 4(5) ibid. The Tribunal held that the subsequent decision in M/s. Saha Industries [2023 (11) TMI 608 - CESTAT KOLKATA] had conclusively established that the supplier was engaged only in paper transactions and had neither the facility nor the actual activity necessary to manufacture the goods said to have generated the waste and scrap covered by the invoices. In that background, entries in the appellant's own records or RG-23 Part-I could not, by themselves, prove actual receipt of inputs. Applying Rules 3 and 4 of the CENVAT Credit Rules, 2004, the Tribunal reiterated that physical receipt of inputs in the manufacturer's factory is a sine qua non for availment of credit, and invoices unbacked by actual goods do not confer eligibility. The remand ordered by the Commissioner (Appeals), which proceeded on the appellant's records and awaited the supplier-case outcome, became untenable once the supplier-case findings stood rendered against the existence of any genuine manufacture or movement of goods. [Paras 17, 18, 19, 20, 22] The remand order was set aside, the denial of CENVAT credit was sustained, and the Order-in-Original was maintained. Penalty for fraudulent availment of CENVAT credit - Mens rea in fictitious input transactions - HELD THAT: - The Tribunal found that the surrounding evidence established fictitious transactions undertaken with the intent to avail credit on inputs not received at the appellant's end. Since the supplier itself was found to be issuing only paper documentation without manufacture or clearance of goods, the downstream records were treated as a facade, and the appellant's conduct disclosed clear mens rea. On that basis, the penal consequences imposed by the adjudicating authority were held to be justified. [Paras 21, 22] The penalty imposed on account of fraudulent availment of CENVAT credit was upheld. Final Conclusion: The Tribunal held that the appellant had availed CENVAT credit on the strength of invoices unsupported by manufacture, movement or physical receipt of goods, and that the transactions were merely paper transactions. The order of remand passed by the Commissioner (Appeals) was set aside, the adjudication order denying credit with interest and penalty was restored, and the appeal was dismissed.

2026 (7) TMI 86 - MADRAS HIGH COURT Central Excise

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Issues: (i) Whether MODVAT or CENVAT credit on LSHS used for generation of electricity could be denied to the extent the electricity and steam were supplied to sister units and the housing colony outside the generating unit. (ii) Whether the extended period of limitation could be invoked for recovery of the credit and penalty.

Issue (i): Whether MODVAT or CENVAT credit on LSHS used for generation of electricity could be denied to the extent the electricity and steam were supplied to sister units and the housing colony outside the generating unit.

Analysis: Rule 57A of the Central Excise Rules, 1944, as amended by Notification No. 11/95, expanded the definition of inputs to include fuel and inputs used for generation of electricity used within the factory of production for manufacture of final products or for any other purpose. The decisive factor was whether the electricity remained part of a captive arrangement linked to manufacturing activity. Credit was held admissible for electricity wheeled to sister units of the same assessee because the factory concept could extend to multiple manufacturing units of the same company and the electricity was used in captive generation and captive consumption. However, electricity used for lighting the housing colony was not used in the manufacture of dutiable final products and fell outside the admissible credit chain.

Conclusion: The denial of credit was not sustainable for electricity supplied to sister units used for manufacture, but was sustainable for the portion used in the housing colony. The issue was therefore answered partly in favour of the assessee and partly against the assessee.

Issue (ii): Whether the extended period of limitation could be invoked for recovery of the credit and penalty.

Analysis: The demand arose after the assessee had transferred electricity to sister units and the housing colony, and the diversion came to light only after inspection. On those facts, the Court found intentional non-disclosure in relation to the inadmissible portion of credit. Section 11A of the Central Excise Act, 1944 therefore permitted invocation of the extended period where suppression of facts with intent to evade duty was established.

Conclusion: The extended period of limitation was rightly invoked, and the issue was decided in favour of the Revenue.

Final Conclusion: The appeals were allowed only to the extent of protecting credit relatable to electricity used for manufacturing in the assessee's sister units, while sustaining denial for the portion attributable to housing colony use and sustaining the extended period demand for that inadmissible portion.

Ratio Decidendi: Credit on fuel used to generate electricity is admissible only to the extent the electricity is used in a captive manufacturing arrangement, whereas electricity used for non-manufacturing purposes remains outside the credit scheme; suppression of the inadmissible diversion justifies the extended limitation under Section 11A.

CENVAT credit on captive power use allowed for manufacturing units, but denied for housing colony consumption; extended limitation upheld.
MODVAT/CENVAT credit on LSHS used to generate electricity was admissible only to the extent the electricity was consumed in a captive manufacturing arrangement. Credit could be retained for electricity wheeled to sister units of the same assessee for manufacture, but was not admissible for the portion used to light the housing colony, as that use was outside the manufacturing chain. The extended period of limitation was also held invocable because the diversion to non-admissible use came to light only on inspection and the Court found suppression of facts with intent to evade duty for that portion.

MODVAT/CENVAT credit on fuel used for captive power generation - Captive consumption of electricity by sister units of the same manufacturer - Denial of credit for electricity used in staff housing colony - Extended period of limitation for suppression of diversion of electricity - recovery of the credit and penalty - Substantial questions of law MODVAT/CENVAT credit on LSHS - Captive generation and captive consumption of electricity - Factory comprising more than one unit - Credit denial for non-manufacturing use of electricity - HELD THAT: - From the change in Rule 57A of the Central Excise Rules, 1944 through the 4th amendment w.e.f. 16.03.1995, we find a liberal approach for claiming input credit has been adopted. The scope of applicability to seek credit of duty paid extended to the inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose. The Court in Maruthi Suzuki [2009 (8) TMI 14 - Supreme Court] case held that, on the definition of factory under the Central Excise Act and the authorities relied on, electricity generated in one unit of the same company and consumed in its other manufacturing units remains a case of captive generation and captive consumption, even if transferred through wheeling. Such use continued to be in relation to manufacture of dutiable final products and did not disentitle the assessee to input credit on LSHS. However, electricity diverted for lighting the housing colony was not used for manufacture of any dutiable final product and, to that extent, the denial of input credit was sustainable. The Tribunal's remand was therefore upheld only for the limited purpose of reassessing the duty relatable to the input used for generation of electricity diverted to the housing colony, and not for electricity used in Plants II and III. [Paras 25, 26, 27, 28, 29] The assessee was entitled to credit for electricity used in its sister manufacturing units, but not for electricity used in the staff housing colony; remand stood confined to quantification of duty on the latter alone. Extended period of limitation - Suppression of diversion of electricity - HELD THAT: - The Court found that the dispute arose after insertion of explanation (d) to Rule 57A and that the show cause notices covered the period commencing from October 1994. It held that the transfer of electricity to sister units and the housing colony came to light only upon inspection by the departmental officers, disclosing an element of intentional suppression. On that basis, the Court upheld invocation of the extended limitation period and distinguished the decision in Reliance Industries on facts. [Paras 26] The question of limitation was answered in favour of the Department. Final Conclusion: The appeals were partly allowed. The Court held that credit on LSHS could not be denied for electricity wheeled to the assessee's sister manufacturing units, but remained inadmissible for electricity used in the staff housing colony; the remand was therefore restricted to quantification of duty on that limited component, while the extended period of limitation was upheld.

2026 (6) TMI 1227 - GAUHATI HIGH COURT Central Excise

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Date of knowledge and mandatory pre-deposit governed restoration of an ex parte appeal
Where an ex parte order was not shown to be within the assessee's knowledge, limitation for filing the appeal was treated as running from the date of knowledge, and the delay was condoned on that basis. The statutory pre-deposit requirement, however, was treated as mandatory and was not waived; time was granted to make the deposit so the appeal could be examined on merits. The appellate order was set aside, the appeal restored, and the matter remitted for fresh consideration after compliance with the deposit condition.

Delay in filing the appeal against the ex parte order - period of limitation - Mandatory pre-deposit for statutory appeal Ex parte adjudication - Condonation of delay in writ jurisdiction - reckoning limitation from the date of knowledge - appeal against the ex parte adjudication rejected as time-barred when the petitioner asserted absence of knowledge of the show cause notice and the adjudication order until a later date - HELD THAT: - The Court held that, on the facts noted before it, the petitioner had no knowledge of either the show cause notice or the adjudication order and came to know of them only later, while the adjudication order had been passed ex parte. In such circumstances, limitation for filing the appeal ought to be reckoned from the date of knowledge of the order. Proceeding on that basis, the Court exercised jurisdiction under Article 226 and condoned the delay, directing that the appeal already filed be treated as within limitation. [Paras 9, 10] The appellate order dismissing the appeal on limitation was set aside, and the appeal was restored to the file of the Commissioner (Appeals) as within time. Statutory pre-deposit - Maintainability of appeal - HELD THAT: - The Court held that deposit of 7.5% of the disputed duty, or duty and penalty, was mandated by Section 35F of the Central Excise Act, 1944 read with the Finance Act, 1994. The appeal could therefore proceed on merits only upon compliance with that statutory requirement, though the Court granted time to make the deposit. [Paras 11, 12] The requirement of pre-deposit was upheld, and the petitioner was granted 30 days to comply. Final Conclusion: The High Court held that, since the adjudication order was ex parte and the petitioner lacked prior knowledge of it, limitation for appeal had to run from the date of knowledge, and the delayed appeal was therefore treated as within time. At the same time, the Court declined to waive the statutory pre-deposit and restored the appeal for decision on merits subject to deposit within the time granted.

2026 (6) TMI 1007 - CESTAT CHENNAI Central Excise

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Reasoned adjudication in clandestine removal cases requires proper consideration of the reply; non-speaking orders invite remand.
A duty demand based on alleged clandestine removal could not be sustained where the assessee's reply to the show cause notice was not properly considered and the adjudication was not a speaking order. The challenge focused on failure to deal with the reply and supporting material, despite an earlier remand directed to ensure such consideration. The order was found inconsistent with reasoned adjudication and fair procedure in duty-demand proceedings, and was set aside with a direction for fresh adjudication by the Original Authority through a speaking order after considering the reply.

2026 (6) TMI 948 - CESTAT CHENNAI Central Excise

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Issues: (i) whether the refund claims were barred by unjust enrichment; (ii) whether the refund claims were barred by limitation under Section 11B; (iii) the effect of non-adoption of provisional assessment under Rule 7; (iv) whether valuation was to be determined on CAS-4 basis or under Chapter 13 of the Indian Railway Code; and (v) whether refund could be denied for want of batch numbers or cost-sheet correlation in the invoices.

Issue (i): Whether the refund claims were barred by unjust enrichment.

Analysis: The refunds arose from excess duty paid on clearances made on estimated cost, with the excess becoming identifiable only after finalisation of actual batch cost. The goods were supplied to Indian Railways for operational use, and no material showed recovery of the duty incidence from any independent buyer or commercial gain to the assessee. The presumption under Section 12B stood rebutted on the facts.

Conclusion: The bar of unjust enrichment did not apply, and rejection of refund on that ground was unsustainable.

Issue (ii): Whether the refund claims were barred by limitation under Section 11B.

Analysis: As provisional assessment under Rule 7 had not been followed, the clearances could not be treated as provisional assessments in law. In that situation, refund of excess duty had to be pursued under Section 11B and remained subject to the statutory period of one year from the relevant date. The date of finalisation of actual cost could not be treated as the relevant date in the absence of provisional assessment.

Conclusion: Claims filed beyond the limitation period were barred, while claims within time were maintainable subject to verification.

Issue (iii): The effect of non-adoption of provisional assessment under Rule 7.

Analysis: Rule 7 provides the statutory mechanism where value or duty cannot be determined at clearance. The assessee did not invoke that procedure, so the assessments could not acquire the character of provisional assessments merely because differential duty was later accepted when cost increased. Non-adoption of Rule 7 did not extinguish the substantive right to seek refund, but it confined the remedy to Section 11B with its limitation and conditions.

Conclusion: The assessments were not provisional in law, and the refund remedy remained governed by Section 11B.

Issue (iv): Whether valuation was to be determined on CAS-4 basis or under Chapter 13 of the Indian Railway Code.

Analysis: For valuation under Rule 8, assessable value had to be determined on cost of production in accordance with the Central Excise valuation framework. Internal railway accounting or costing instructions could not override the statutory valuation regime. CAS-4 was the accepted costing standard for excise valuation, whereas Chapter 13 of the Railway Code could not control excise assessable value.

Conclusion: Valuation had to be determined on CAS-4 basis and not solely under Chapter 13 of the Indian Railway Code.

Issue (v): Whether refund could be denied for want of batch numbers or cost-sheet correlation in the invoices.

Analysis: Absence of batch numbers in invoices did not by itself justify outright rejection, because the assessee followed batch costing and the same methodology had been accepted for differential duty when cost increased. However, the assessee had to establish correlation through cost sheets, production records, dispatch details, and other contemporaneous documents, and the adjudicating authority was required to verify admissibility and quantification on that basis.

Conclusion: Refund could not be denied merely for absence of batch numbers if correlation was otherwise established from the records.

Final Conclusion: The order was modified by setting aside the rejection based on unjust enrichment, sustaining the limitation bar for time-barred claims, affirming the statutory requirement of valuation under the excise regime, and remitting the matter for limited verification of correlation, quantification, and admissibility, while sustaining the denial relating to spares.

Ratio Decidendi: In refund cases arising from post-clearance finalisation of estimated cost, unjust enrichment is rebutted when the duty incidence has not been passed on and the claim is supported by the assessee's records, but in the absence of provisional assessment the refund remains governed by Section 11B and its limitation.

Refunds on estimated-cost clearances: unjust enrichment may fail, but Section 11B limitation and CAS-4 valuation still govern.
Refund claims arising from post-clearance finalisation of estimated cost were discussed on five points: unjust enrichment was held inapplicable where duty incidence was not shown to have been passed on, so that ground could not sustain rejection; however, because Rule 7 provisional assessment was not adopted, the claims remained governed by Section 11B and were subject to the one-year limitation from the relevant date, making time-barred claims unsustainable. Valuation had to follow CAS-4 under the excise valuation framework, not merely Chapter 13 of the Railway Code. Refund could not be denied only because invoices lacked batch numbers if correlation was otherwise proved from cost sheets and records.

Unjust enrichment in refund of excess duty on inter-governmental captive supplies - Refund limitation in absence of provisional assessment - Valuation on cost of production under CAS-4 - Correlation of refund claims with batch-costing records - Refund claims barred by limitation under Section 11B - effect of non-adoption of provisional assessment under Rule 7 Unjust enrichment - Rebuttal of statutory presumption - Excess duty arising from post-clearance cost finalization - Refund of excess duty paid on railway coaches cleared on estimated cost - HELD THAT: - The Tribunal held that the excess duty arose solely because duty had initially been paid on estimated cost and the actual batch cost, on finalization, turned out to be lower. The coaches were supplied by the appellant, a production unit under the Ministry of Railways, to Indian Railways for use as rolling stock and not sold as marketable goods to independent buyers. In the absence of any material from the Revenue showing that the excess duty incidence had been passed on or that any commercial gain had been derived, the appellant was held to have rebutted the presumption under Section 12B. The Tribunal followed the decision in the appellant's own case [2019 (12) TMI 279 - CESTAT CHENNAI] and the Madras High Court decision in Sescot Sheet Metal Works Ltd. [2015 (4) TMI 386 - MADRAS HIGH COURT]. [Paras 8, 9, 10, 11] Rejection of refund on the ground of unjust enrichment was set aside. Final assessment in absence of provisional assessment - Refund under Section 11B subject to limitation - Relevant date for refund of excess duty - HELD THAT: - The Tribunal held that, since the appellant had not invoked the statutory mechanism of provisional assessment, the assessments made at the time of removal had to be treated as final. In such a case, no legal basis existed to treat the later date of finalization of actual cost as the relevant date for refund. The substantive entitlement to seek refund was not extinguished by failure to adopt provisional assessment, but the consequence was that the claim could be pursued only under Section 11B, with the prescribed one-year limitation. Acceptance by the Department of differential duty when actual cost exceeded estimated cost did not convert the assessments into provisional assessments in law. [Paras 15, 16, 17, 18, 19] Refund claims filed within the statutory period were held admissible subject to verification, while claims filed beyond that period were held time-barred. Correlation of invoices with batch-cost records - Verification of refund quantification - Batch-costing methodology - HELD THAT: - The Tribunal held that the Department could not reject the refund methodology outright after having accepted the same batch-costing system for determination and recovery of differential duty when actual cost was higher. At the same time, the appellant remained bound to establish the nexus between the clearances, the relevant batch-cost records and the excess duty claimed by producing cost sheets, production records, batch-wise or coach-wise statements, dispatch particulars and other contemporaneous material. The absence of batch numbers on invoices could justify detailed scrutiny, but not denial of refund where correlation could otherwise be established from reliable records. [Paras 20, 21] Refund was directed not to be denied merely for want of batch numbers on invoices, and the matter was remanded for verification of correlation and quantification. Cost of production under Rule 8 - CAS-4 valuation standard - Internal departmental code versus statutory valuation rules - HELD THAT: - The Tribunal held that valuation under Rule 8 is governed by the statutory requirement of determination on the basis of cost of production, for which CAS-4 is the accepted costing standard in excise valuation. Internal costing, budgeting or accounting procedures under the Indian Railway Code could not override the valuation framework prescribed under the Central Excise law. Since excise duty is a fiscal levy, assessable value had necessarily to be determined in accordance with the statutory valuation rules. [Paras 23, 24, 25] Valuation under Rule 8 was held to be determinable on CAS-4 basis and not on the basis of Chapter 13 of the Indian Railway Code. Final Conclusion: The Tribunal held that the refund claims were not hit by unjust enrichment, but in the absence of provisional assessment they were maintainable only under Section 11B and subject to its limitation. The impugned order was modified, valuation was directed to be governed by CAS-4, denial of refund solely for absence of batch numbers on invoices was disapproved, and the matter was remanded for limited verification of limitation, correlation, quantification and consequential admissible refund; the denial relating to spares was left undisturbed.

2026 (6) TMI 1006 - CESTAT KOLKATA Central Excise

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Issues: (i) Whether remission of Central Excise duty was admissible under Rule 21 of the Central Excise Rules, 2002 for the shortage of Pig Iron arising from inevitable handling and process losses before removal; (ii) whether the shortage, being 0.55% of production, was covered by the Board's product-specific condonation norm for Pig Iron and could not be rejected on the footing that it was not caused by flood, fire, cyclone or earthquake; (iii) whether the impugned order could be sustained when it proceeded on Rule 223A of the erstwhile Central Excise Rules, 1944 instead of the governing remission provision.

Issue (i): Whether remission of Central Excise duty was admissible under Rule 21 of the Central Excise Rules, 2002 for the shortage of Pig Iron arising from inevitable handling and process losses before removal.

Analysis: Pig Iron is a brittle product and, in the course of casting, handling, storage and intra-plant transportation, Chips, Dust and Dross are inevitably generated. The shortage was found to have accumulated over time and was established by actual weighment. Rule 21 empowers remission where goods are lost or destroyed by natural causes or by unavoidable accident before removal, and the provision is not confined to catastrophic events alone. Applying a practical and liberal construction, inevitable and irrecoverable losses inherent in manufacture and pre-removal handling fall within the remit of the rule.

Conclusion: Remission under Rule 21 was admissible and the claim could not be rejected on the ground that the loss was not caused by a catastrophic natural event.

Issue (ii): Whether the shortage, being 0.55% of production, was covered by the Board's product-specific condonation norm for Pig Iron and could not be rejected on the footing that it was not caused by flood, fire, cyclone or earthquake.

Analysis: The Board's Circular No. 52/79-CX dated 26.10.1979 prescribes condonable loss of 2% for Pig Iron during annual stock-taking. The loss in question was only 0.55% of total production, well within that norm. The Tribunal treated those administrative instructions as relevant and binding for assessing marginal shortages of pig iron and steel. A narrow construction limiting remission only to specified calamities would defeat the purpose of the remission regime and ignore the practical realities of stock variation in such goods.

Conclusion: The shortage fell well within the condonable limit and the rejection of remission on the stated footing was unsustainable.

Issue (iii): Whether the impugned order could be sustained when it proceeded on Rule 223A of the erstwhile Central Excise Rules, 1944 instead of the governing remission provision.

Analysis: The application was made under Rule 21 of the Central Excise Rules, 2002, and the erstwhile 1944 Rules had ceased to operate during the relevant period. The adjudicating order erroneously referred to Rule 223A as the basis of the request, despite the governing regime being the 2002 Rules. That error undermined the legal foundation of the rejection.

Conclusion: The impugned order could not be sustained on that basis.

Final Conclusion: The shortage of 5490.601 MT of Pig Iron was held to qualify for remission under the governing excise remission regime, the rejection order was set aside, and the appeal was allowed with consequential relief as per law.

Ratio Decidendi: Rule 21 of the Central Excise Rules, 2002 must be construed reasonably and liberally so as to cover inevitable pre-removal handling and process losses, especially where the shortage is marginal and within binding product-specific condonation norms.

Central Excise remission for inevitable Pig Iron losses was linked to Rule 21 and the product-specific condonation norm.
Rule 21 of the Central Excise Rules, 2002 is described as allowing remission for loss or destruction before removal through natural causes or unavoidable accident, and the text applies that principle to inevitable pre-removal handling and process losses in Pig Iron. It also notes that a 0.55% shortage was within the Board's product-specific 2% condonation norm for Pig Iron, making rejection on the basis that the loss was not due to flood, fire, cyclone or earthquake inconsistent with the remission regime. The text further points out that an order relying on Rule 223A of the erstwhile 1944 Rules is legally unsound where the governing framework is Rule 21 of the 2002 Rules.

Remission of duty on pre-removal handling loss of pig iron - Binding product-specific condonable loss norms - shortage of Pig Iron arising from inevitable handling and process losses before removal - Principles of natural justice - Expressions "natural causes" and "unavoidable accident" occurring in Rule 21 - HELD THAT: - The Hon'ble High Court of Rajasthan in Union of India v. Hindustan Zinc Ltd. [2004 (4) TMI 197 - CESTAT, BANGALORE], wherein, while affirming the grant of remission under Rule 21 in respect of handling and storage losses of lead and zinc concentrates (occasioned by de-bagging, shifting of concentrates, seepage of rain water, and storage and loading on trucks), the Hon'ble High Court held that the expressions "natural causes" and "unavoidable accident" occurring in Rule 21 are required to be given a reasonable and liberal meaning, lest the provision, in so far as it relates to the admissibility of remission on these two grounds, be rendered "altogether otiose". It was held that a more practical approach is called for, observing that even in the case of an "unavoidable accident" it can always be contended that the accident could have been avoided by recourse to one or more measures, and that, if such a stand were accepted, no loss or destruction would ever fall within either clause. In Steel Authority of India Ltd. v. Commissioner of C. Ex., Mysore [2005 (10) TMI 181 - CESTAT, BANGALORE] and in Rashtriya Ispat Nigam Ltd. v. Commr. of Cus. & C. Ex., Visakhapatnam [2008 (9) TMI 663 - CESTAT, BANGALORE], the Tribunal, having regard to the guidelines on condonation of losses contained in C.B.E.C. Circular No. 52/79-CX dated 26.10.1979 and to the marginal nature of the shortage, held that demands founded on such stock-taking shortages of pig iron/steel could not be sustained. The Tribunal found that the Board's product-specific instructions prescribed condonable loss of 2% for pig iron during annual stock-taking. On the figures recorded in the case, the shortage worked out to 0.55% of total production for the period in dispute and was therefore within the condonable limit. Relying on Tribunal decisions applying the same circular to shortages of pig iron and steel, the Tribunal held that the Commissioner erred in rejecting the remission claim in disregard of the binding Board instructions. The Tribunal also noted that the remission application had in fact been filed under Rule 21 of the Central Excise Rules, 2002, whereas the impugned order proceeded on the footing of Rule 223A of the erstwhile 1944 Rules, which were no longer in force during the relevant period. On that basis, the rejection of remission was held unsustainable. [Paras 6] The assessee was held entitled to remission of duty on the pig iron shortage for the period 2001-02 to 2011-12, and the order rejecting remission was set aside. Final Conclusion: The Tribunal held that the shortage of pig iron, being within the Board-prescribed condonable limit and claimed under Rule 21 of the Central Excise Rules, 2002, qualified for remission of duty. The order rejecting remission was set aside and the appeal was allowed with consequential relief.

2026 (6) TMI 896 - CESTAT AHMEDABAD Central Excise

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Bagasse as non-excisable waste: Rule 6 Cenvat credit reversal not applicable, with interest and penalty unsustainable.
Bagasse arising as an inevitable waste or residue in sugar manufacture was treated as non-excisable because it was not the result of any manufacturing process. On that basis, Rule 6 of the Cenvat Credit Rules, 2004 did not apply to require reversal of credit, and the later explanations inserted into Rule 6(1) and the departmental circular could not displace that legal position. The demand for reversal was therefore unsustainable, and the consequential interest and penalty also could not survive.

2026 (6) TMI 895 - CESTAT AHMEDABAD Central Excise

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Exported sugar exempt from sugar cess; demand, interest and penalty could not be sustained.
Sugar cess was not payable on sugar actually exported out of India because the relevant notifications and circulars exempted export clearances. The Tribunal relied on the Ministry of Food notification, the CBIC circular, and its earlier decision on the same issue to hold that the levy did not survive for exported sugar. The demand, interest, and penalty could not be sustained.

2026 (6) TMI 1005 - CESTAT KOLKATA Central Excise

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Issues: (i) Whether freight and transportation charges were includible in the assessable value of goods sold on ex-works/FOR-works basis when separate invoices were raised for supply and transportation; (ii) whether Rule 8 of the Central Excise Valuation Rules, 2000 applied to goods supplied under turnkey contracts for erection and commissioning at the customer's site; (iii) whether the demand was barred by limitation; and (iv) whether interest and penalty survived.

Issue (i): Whether freight and transportation charges were includible in the assessable value of goods sold on ex-works/FOR-works basis when separate invoices were raised for supply and transportation.

Analysis: The contracts showed transfer of title at the factory gate and separate consideration for transportation and erection/commissioning. For the relevant period, Section 4 of the Central Excise Act, 1944 treated the factory or warehouse as the place of removal, and Rule 5 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 excluded transportation beyond the place of removal where separately shown.

Conclusion: Freight and transportation charges were not includible in the assessable value, and the demand on this count was unsustainable.

Issue (ii): Whether Rule 8 of the Central Excise Valuation Rules, 2000 applied to goods supplied under turnkey contracts for erection and commissioning at the customer's site.

Analysis: Rule 8 applies only where excisable goods are not sold but are used for consumption by or on behalf of the assessee. Here, the goods were sold at the factory gate and only thereafter used in the turnkey erection process. The erected boilers and turnkey installations resulted in immovable property, so valuation could not be shifted to Rule 8 on a captive-consumption theory.

Conclusion: Rule 8 was inapplicable, and the valuation based on 110/115% of cost of production could not be sustained.

Issue (iii): Whether the demand was barred by limitation.

Analysis: The show cause notices covered overlapping periods on identical issues, and the department was already aware of the facts after the first notice. Non-disclosure of freight in returns did not justify extended limitation where the return format did not require such disclosure, and the dispute was interpretational without mala fide suppression.

Conclusion: Invocation of the extended period of limitation was not sustainable.

Issue (iv): Whether interest and penalty survived.

Analysis: Once the principal duty demand failed on merits and limitation, the ancillary levy of interest and penalty could not stand independently.

Conclusion: Interest and penalty were also unsustainable.

Final Conclusion: The duty demand, valuation reassessment, limitation-based confirmation, and allied interest and penalty all failed, resulting in complete relief to the assessee.

Ratio Decidendi: For ex-works sales where title passes at the factory gate and transportation is separately contracted and invoiced, freight beyond the place of removal is excluded from assessable value; Rule 8 is confined to non-sale captive consumption and cannot be used to value goods sold for turnkey erection into immovable property.

Ex-works valuation excludes separate freight charges; Rule 8 cannot goods sold for turnkey erection and commissioning.
For ex-works sales where title passes at the factory gate and transportation is separately invoiced, freight and transportation charges beyond the place of removal are excluded from assessable value under the Central Excise valuation scheme, so the related duty demand fails. Rule 8 does not apply where goods are sold first and then used in turnkey erection and commissioning contracts, because it is confined to non-sale captive consumption; valuation on a cost-plus basis for such supplies was therefore unsustainable. The extended period of limitation was also not available in the absence of mala fide suppression, and once the principal demand failed, interest and penalty could not survive.

Inclusion of freight and transportation charges - assessable value of goods sold on ex-works/FOR-works basis - Place of removal - valuation of excisable goods - Applicability of Rule 8 - Captive consumption valuation - Immovable property - Extended period of limitation - contracts showed transfer of title at the factory gate and separate consideration for transportation and erection/commissioning Whether the cost of freight can be included in the value of assessable value for payment of excise duty, in case of Ex-works/ FOR works contracts, when separate invoices were raised for both supply of goods and transportation undertaken on behalf of the buyer ? - HELD THAT: - Hon’ble Supreme Court in the case of Commissioner of Customs and Central Excise, Nagpur v. Ispat Industries Ltd. [2015 (10) TMI 613 - SUPREME COURT], wherein it was held that for the period prior to 14.05.2003, as per Section 4 of the Central Excise Act, there will be no extended place of removal and the factory premises or the warehouse (in the circumstances mentioned in the Section) can alone be the places of removal. The Tribunal found from the contracts that title and risk in the manufactured equipment passed to the buyers at the factory gate and that transportation, erection and commissioning were separately contracted and separately charged. On that basis, the factory gate remained the place of removal. For the relevant period prior to and even after the amendment of section 4, the buyer's premises could not be treated as the place of removal in such ex-works supplies. Since the freight was incurred after clearance from the factory and was separately charged, Rule 5 did not permit its inclusion in the transaction value. [Paras 10, 11] The demand based on inclusion of freight in the assessable value was held unsustainable and was set aside. Captive consumption valuation - Turnkey projects - Boilers - Immovable property - HELD THAT: - The Tribunal held that Rule 8 applies only where goods are not sold but are used for consumption by the assessee or on his behalf in further manufacture. In the present case, the manufactured equipment had already been sold to the customers on Ex-works/FOR works basis at the factory gate, and only thereafter was made available at site for erection and commissioning under separate contractual arrangements. There was therefore no captive consumption of the same goods by the appellant. In the case of M/s. Thermax Ltd. v. Commissioner of CGST & CE, Pune – I [2022 (12) TMI 1047 - CESTAT MUMBAI], which was affirmed by the Hon’ble Supreme Court in [2026 (5) TMI 1586 - SC ORDER], wherein it was held that boilers which are erected at the customer’s site basis the goods manufactured and cleared by the assessee including the bought out items, is an immovable property, which is not excisable. Thus, duty is correctly paid on the individual components of boiler manufactured and cleared by the Appellant. In the case of M/s. Cheema Boilers Ltd. v. Commissioner of Central Excise & ST, Chandigarh [2018 (4) TMI 1157 - CESTAT CHANDIGARH], wherein in a case of composite contract entered for erection, commissioning and installation of boilers at site, the Department attempted to levy excise duty by including the value of bought out items in the assessable of the parts cleared by the factory. In this case, the excise duty demand was set aside by observing that the boilers emerge at project site as an immovable property, which is not excisable goods. The Tribunal further held that the final boiler system erected at site in the course of the turnkey project, involving substantial civil work and integration, acquired the character of immovable property and was not excisable. Consequently, excise duty was payable only on the manufactured components cleared from the factory on transaction value, and not on any value relatable to bought-out items, erection or commissioning by resort to Rule 8. [Paras 11] The valuation adopted under Rule 8 and the consequential duty demand on that basis were held unsustainable and were set aside. Extended period of limitation - Overlapping show cause notices - Interpretational dispute - Interest and penalty - HELD THAT: - The Tribunal held that once the first show cause notice invoking the extended period had been issued, the material facts stood within the department's knowledge, making invocation of the extended period in the subsequent notice on identical issues and overlapping periods legally untenable. It further held that non-disclosure of freight in returns could not justify extended limitation when such disclosure was not required in the statutory returns, and that the dispute was interpretational without mala fide intent. Since the principal demands failed, the related interest and penalty could not survive. [Paras 12] The demands founded on extended limitation were held unsustainable, and the associated interest and penalty were also set aside. Final Conclusion: The Tribunal set aside the impugned order in entirety. It held that freight separately charged after ex-works clearance could not be added to assessable value, Rule 8 had no application to goods already sold and later erected into an immovable boiler system, and the demands were also barred by extended limitation; interest and penalty consequently did not survive.

2026 (8) TMI 234 - CESTAT KOLKATA Central Excise

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Issues: (i) Whether an inevitable coal-gas by-product arising during manufacture of coke attracts payment under Rule 6(3) of the Cenvat Credit Rules, 2004; (ii) Whether coke manufactured on job-work basis and returned to the principal manufacturer must be valued under Rule 10A(iii) read with Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

Issue (i): Whether an inevitable coal-gas by-product arising during manufacture of coke attracts payment under Rule 6(3) of the Cenvat Credit Rules, 2004.

Analysis: Coal gas emerged inevitably in the manufacture of coke and was not independently manufactured as a final product. The governing principle distinguishes an inevitable by-product from a final product; therefore, the mechanism applicable to exempted final products could not be applied to coal gas.

Conclusion: Coal gas was an inevitable by-product and no amount was payable under Rule 6(3) of the Cenvat Credit Rules, 2004. The finding is in favour of the assessee.

Issue (ii): Whether coke manufactured on job-work basis and returned to the principal manufacturer must be valued under Rule 10A(iii) read with Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

Analysis: The job-worked coke was returned to the principal manufacturer for its further manufacture and was neither sold by the job worker to independent buyers nor consumed by the job worker or on its behalf. Rule 8 was consequently inapplicable. Valuation was appropriately based on the cost of raw materials plus job-work conversion charges, after due adjustment for by-product realisations.

Conclusion: Valuation under Rule 10A(iii) read with Rule 8 was not applicable, and the duty paid on the adopted job-work valuation was correct. The finding is in favour of the assessee.

Final Conclusion: The demands founded on the treatment of coal gas as an exempted final product and on the proposed job-work valuation methodology were unsustainable.

Ratio Decidendi: An inevitable by-product is not a final product for applying the Cenvat credit reversal mechanism, and goods returned by a job worker to the principal manufacturer for further manufacture are not assessable under the captive-consumption valuation rule merely because the principal thereafter consumes them.

Inevitable by-products and job-worked coke remain outside exempt-product reversal and captive-consumption valuation rules in further manufacturing arrangements.
Inevitable coal gas arising during coke manufacture is a by-product rather than a final product, so the payment mechanism for exempted final products under Rule 6(3) of the Cenvat Credit Rules does not apply. Coke produced on job work and returned to the principal manufacturer for further manufacture is neither sold by the job worker nor consumed by or on behalf of that job worker; captive-consumption valuation under Rule 10A(iii) read with Rule 8 is therefore inapplicable. Valuation based on raw-material cost and job-work conversion charges, adjusted for by-product realisations, supports the duty treatment.

Rule 6 CENVAT liability on inevitable by-products - Job-work valuation of goods returned to principal manufacturer Rule 6 CENVAT liability on inevitable by-products - Liability under Rule 6(3) of the Cenvat Credit Rules, 2004 in respect of coal gas inevitably emerging during manufacture of coke - HELD THAT: - The said issue has been examined by the Hon’ble Apex Court in the case of Union of India Vs. Hindustan Zinc Ltd. [2014 (5) TMI 253 - SUPREME COURT] wherein it has been held that the by-product cannot be said as a final product. Coal gas emerged in the course of manufacture of coke and was a by-product, not a final product. Applying the principle that a by-product cannot be treated as a final product for this purpose, Rule 6(3) was held inapplicable. [Paras 6] The demand, interest and penalty founded on Rule 6(3) in respect of coal gas were set aside. Job-work valuation of goods returned to principal manufacturer - Applicability of Rule 10A(iii) read with Rule 8 of the Central Excise Valuation Rules, 2000 to lam coke manufactured on job work and returned to the principal manufacturer for further manufacture - HELD THAT: - Where job-worked goods are returned to the principal manufacturer and thereafter used by it in further manufacture, Rules 10A(i) and 10A(ii) do not apply, and Rule 8 is equally inapplicable because the goods are not consumed by the job worker or on its behalf. Valuation is to proceed on the basis of the raw-material cost and job-work charges, rather than by applying Rule 10A(iii) read with Rule 8. Same view has expressed in Rolastar Pvt. Ltd. [2011 (9) TMI 776 - CESTAT, AHMEDABAD] wherein this Tribunal held that in a case where the goods manufactured on job work basis were sent back to the principal manufacturer and used by the latter in further manufacture, Rule 10A(i) and Rule 10A(ii) were not applicable, Rule 8 was not attracted since the goods were not consumed by the assessee or on his behalf and valuation has to be proceeded on the basis of cost of raw materials plus job work charges.[Paras 15, 16] The appellant's valuation and duty payment were held correct, and the differential-duty demand was set aside. Final Conclusion: All three appeals were allowed with consequential relief. The demands based on Rule 6(3) for coal gas and on Rule 10A(iii) read with Rule 8 for job-worked lam coke were set aside.

2026 (6) TMI 1419 - GUJARAT HIGH COURT Central Excise

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No suppression of facts defeats extended limitation and penalty where the assessee had disclosed the classification and exemption claim.
Repeated disclosure of the classification adopted for wet wipes and the exemption claim, together with audit and departmental scrutiny, supported the Tribunal's factual finding of no suppression with intent to evade duty. On that basis, invocation of the extended period of limitation was not sustainable, and the associated penalty also failed because it rested on the same absence of suppression. The Court held that no substantial question of law arose from these fact-based findings and upheld the Tribunal's conclusion.

2026 (6) TMI 798 - CESTAT HYDERABAD Central Excise

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Issues: (i) whether duty-paid goods received in the factory and used for erection of the Air Separation Plant qualified as capital goods under Rule 2(a) of the CENVAT Credit Rules, 2004; (ii) whether they alternatively qualified as inputs under Rule 2(k) of the CENVAT Credit Rules, 2004; (iii) whether ownership of the goods by Inox disentitled the appellant from availing credit; (iv) whether the attachment of the Air Separation Plant to earth affected admissibility of credit; (v) whether Rule 4(3) of the CENVAT Credit Rules, 2004 restricted credit only to goods leased from financing companies; (vi) whether the impugned order travelled beyond the allegations in the show cause notice; and (vii) whether the amendment to Rule 2(k) with effect from 07.07.2009 could be applied retrospectively.

Issue (i): whether duty-paid goods received in the factory and used for erection of the Air Separation Plant qualified as capital goods under Rule 2(a) of the CENVAT Credit Rules, 2004.

Analysis: The goods comprised machinery, equipment, parts and accessories falling under the relevant tariff chapters and were received under valid invoices in the factory. The integrated plant was assembled from individual duty-paid capital goods used in the manufacture of the final product. Credit on capital goods does not depend on the plant being separately excisable or on the machinery being used in isolation.

Conclusion: Yes. The goods were eligible for CENVAT credit as capital goods.

Issue (ii): whether they alternatively qualified as inputs under Rule 2(k) of the CENVAT Credit Rules, 2004.

Analysis: The plant and its components were used within the factory in the manufacturing process and formed part of the operational chain supporting manufacture of paper products. The wider definition of inputs covered goods used in the factory for manufacture of final products, and the nature of the items supported eligibility on this alternative basis as well.

Conclusion: Yes. The goods were also eligible as inputs.

Issue (iii): whether ownership of the goods by Inox disentitled the appellant from availing credit.

Analysis: The credit scheme turns on receipt and use of goods in the factory, not on title. The invoices named the appellant as consignee, the goods were received and used in its factory, and ownership remaining with the lessor was not a statutory disqualification.

Conclusion: No. Ownership by Inox did not disentitle the appellant from credit.

Issue (iv): whether the attachment of the Air Separation Plant to earth affected admissibility of credit.

Analysis: The fastening of machinery to the earth was for stability and functional operation. Such attachment did not destroy the identity of the constituent duty-paid machinery and components, and immovability of the integrated plant did not bar credit on the capital goods used to set it up.

Conclusion: No. Attachment to earth did not affect admissibility of credit.

Issue (v): whether Rule 4(3) of the CENVAT Credit Rules, 2004 restricted credit only to goods leased from financing companies.

Analysis: The provision is enabling and enlarging in nature. It does not limit credit to leases from financing companies; rather, it recognizes credit eligibility in leasing arrangements and does not impose the restrictive interpretation adopted in the impugned order.

Conclusion: No. Rule 4(3) did not impose such a restriction.

Issue (vi): whether the impugned order travelled beyond the allegations in the show cause notice.

Analysis: The show cause notice did not found the case on a disqualification based on ownership remaining with Inox, yet the demand was substantially confirmed on that basis. An adjudicating order cannot introduce a new ground beyond the notice, as that violates natural justice.

Conclusion: Yes. The impugned order travelled beyond the show cause notice.

Issue (vii): whether the amendment to Rule 2(k) with effect from 07.07.2009 could be applied retrospectively.

Analysis: The disputed period ended before 07.07.2009. The amendment was treated as prospective and could not be used to deny credit for a prior period.

Conclusion: No. The amendment could not be applied retrospectively.

Final Conclusion: The demand, interest and penalty were unsustainable both on merits and on limitation, and the assessee was entitled to the consequential relief granted.

Ratio Decidendi: CENVAT credit is admissible on duty-paid machinery, equipment, parts and components used in the factory even when assembled into an integrated plant attached to earth, and neither absence of ownership nor a leasing arrangement with a non-financing lessor defeats eligibility; an adjudication cannot also rest on a ground beyond the show cause notice, and a later restrictive amendment cannot be applied retrospectively.

CENVAT credit for plant erection upheld on capital goods, inputs, ownership, and retrospective amendment objections.
CENVAT credit was held admissible on duty-paid machinery, equipment, parts and accessories used to erect an air separation plant in the factory, both as capital goods under Rule 2(a) and alternatively as inputs under Rule 2(k). Credit was not denied merely because the plant was owned by the lessor, because the machinery was attached to earth for operational stability, or because the arrangement was not with a financing company. The adjudication also could not rely on a disqualification not alleged in the show cause notice, and the 07.07.2009 amendment to Rule 2(k) was treated as prospective only. The demand, interest and penalty were therefore unsustainable.

CENVAT credit on capital goods and inputs used for setting up an Air Separation Plant - Immovability of integrated plant and admissibility of CENVAT credit on constituent machinery - Leased capital goods and irrelevance of ownership for CENVAT credit - Scope of Rule 4(3) in lease arrangements - Adjudication beyond show cause notice - Prospective operation of restrictive amendment to inputs definition - Extended limitation in interpretational disputes - Ownership not a criterion - Immovability of plant - Leasing arrangement - Prospective amendment - Extended period of limitation - Beyond show-cause notice - Natural justice - Operational attachment to earth CENVAT credit on capital goods and inputs used for setting up an Air Separation Plant - Immovability of integrated plant and admissibility of CENVAT credit on constituent machinery - HELD THAT: - Rule 2(a) of the CENVAT Credit defines “Capital goods” to include goods falling under chapter 82, 84, 85, 90 and components, spares and accessories thereof. The undisputed position is that the impugned machinery and equipment fall under chapter 84 and related chapters, were duty-paid, and where received in appellant’s factory under valid invoices. The Tribunal held that the goods in question were duty-paid machinery, equipment, parts and components falling within the categories recognized as capital goods, received in the factory under valid invoices and used in manufacture of the final product. Following JSW Ispat Steel Ltd. [2013 (11) TMI 1389 - CESTAT MUMBAI], it held that the Rules do not require that such machinery be used as such without assembly, and that credit cannot be denied merely because individual capital goods are assembled into a larger plant. The immovability of the integrated Air Separation Plant was treated as irrelevant, since fastening to earth for stability and vibration-free functioning does not destroy the identity of the constituent machines. The post-07.07.2009 amendment to the definition of inputs was held to be prospective and incapable of being applied to the period in dispute. [Paras 21, 26, 27, 29, 32] Credit on the goods used for setting up the Air Separation Plant was admissible, and the plea based on immovability or the later amendment to the inputs definition was rejected. Leased capital goods and irrelevance of ownership for CENVAT credit - Scope of Rule 4(3) in lease arrangements - HELD THAT: - The Tribunal held that the CENVAT scheme emphasizes receipt and use of the goods in the factory and does not prescribe ownership as a condition for availment of credit. Relying on Pepsi Foods Ltd., JSW Ispat Steel Ltd.[2013 (11) TMI 1389 - CESTAT MUMBAI] and the view noticed from M/s Modernova Plastyles [2015 (6) TMI 154 - BOMBAY HIGH COURT] it held that lease arrangements do not, by themselves, bar credit. On Rule 4(3), the Tribunal construed the expression allowing credit "even if" capital goods are acquired on lease, hire purchase or loan agreement from a financing company as enlarging and enabling, not restrictive; consequently, the lessor need not be a financing company for the user-manufacturer to avail credit. [Paras 22, 23, 24, 25, 32] Denial of credit on the ground that Inox retained ownership or was not a financing company was held unsustainable. Adjudication beyond show cause notice - HELD THAT: - The Tribunal found that the show cause notice did not allege that mere retention of ownership by Inox would by itself disentitle the appellant from taking credit. Since the demand was substantially confirmed on that fresh ground, the adjudication exceeded the notice. The Tribunal held that an adjudicating authority cannot found its order on a ground not proposed in the show cause notice, and that doing so violates principles of natural justice. [Paras 28, 32] The impugned order was vitiated to the extent it relied on a ground beyond the show cause notice. Extended limitation in interpretational disputes - HELD THAT: - The Tribunal held that the credit had been taken on the strength of valid invoices and disclosed in monthly statutory returns, and that the relevant facts were within the Department's knowledge. As the controversy was interpretational and had been the subject of judicial debate, the ingredients of suppression, misstatement or intent to evade duty were absent. On that basis, the extended period under the proviso to Section 11A(1) was held unavailable, rendering the entire demand time-barred; consequently, interest and penalty could not survive. [Paras 30, 31, 32] The entire demand was barred by limitation, and the consequential interest and penalty were liable to fail. Final Conclusion: The Tribunal held that the appellant was entitled to CENVAT credit on the duty-paid goods used for setting up the Air Separation Plant, and that neither ownership with the lessor, nor the plant's attachment to earth, nor Rule 4(3) could defeat that entitlement. The impugned order was also found to travel beyond the show cause notice, the later amendment to the inputs definition was held prospective, and the entire demand was further held barred by limitation; accordingly, the order was set aside and the appeal allowed.

2026 (6) TMI 702 - CESTAT CHENNAI Central Excise

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Issues: (i) Whether the appellant was entitled to refund of excess Oil Industry Development Cess paid on account of incorrect valuation under the Oil Industry (Development) Act, 1974 and the Central Excise Act, 1944. (ii) Whether the refund claim was barred by unjust enrichment under Sections 11B and 12B of the Central Excise Act, 1944.

Issue (i): Whether the appellant was entitled to refund of excess Oil Industry Development Cess paid on account of incorrect valuation under the Oil Industry (Development) Act, 1974 and the Central Excise Act, 1944.

Analysis: The levy of cess under Section 15 of the Oil Industry (Development) Act, 1974 was ad valorem for the relevant period, so valuation had to be tested on the principles of Section 4 of the Central Excise Act, 1944. The sale price under the crude oil sale agreement was treated as if it were exclusive of duty, though the pricing mechanism did not separately recover the cess. The record showed that excess cess was paid by adopting an ex-duty value instead of a cum-duty value, and the verification report accepted the mathematical excess. The contractual terms and invoices also showed that the cess was not a recoverable component from the buyer.

Conclusion: The appellant established payment of excess cess due to incorrect valuation, and refund was admissible in principle in favour of the assessee.

Issue (ii): Whether the refund claim was barred by unjust enrichment under Sections 11B and 12B of the Central Excise Act, 1944.

Analysis: Section 12B raised a rebuttable presumption that the duty burden had been passed on, but the appellant rebutted it through the crude oil sale agreement, invoices, a chartered accountant's certificate, and the buyer's confirmation. These documents showed that the contractual price did not include Oil Industry Development Cess and that the buyer had not paid that cess to the appellant. The Department produced no contrary material to show passing on of the incidence, so the statutory presumption stood displaced on the evidence.

Conclusion: The refund was not hit by unjust enrichment, and the issue was decided in favour of the assessee.

Final Conclusion: The excess cess paid on incorrect valuation was refundable, and the rejection of refund on unjust enrichment grounds was unsustainable; the appeal succeeded with consequential relief.

Ratio Decidendi: Where an ad valorem cess is paid on an inflated value under a contract that does not permit recovery of the cess from the buyer, refund is allowable if the assessee rebuts the Section 12B presumption by credible contractual and documentary evidence showing non-passing of the duty burden.

Refund of excess cess allowed where valuation was inflated and documentary evidence rebutted unjust enrichment presumption.
An ad valorem Oil Industry Development Cess paid on an inflated value was held refundable where valuation should have followed Section 4 principles of the Central Excise Act and the record showed excess payment through adoption of an ex-duty value instead of a cum-duty value. The refund was also held not barred by unjust enrichment because the Section 12B presumption was rebutted by the contract, invoices, a chartered accountant's certificate, and buyer confirmation showing that the cess was not recovered from the buyer. Credible documentary evidence displaced the presumption of duty passing on, making refund admissible in principle.

Cum-duty valuation for ad valorem OID Cess - Refund of excess cess paid on incorrect assessable value - Unjust enrichment in OID Cess refund - Rebuttal of presumption of passing on of duty incidence - Cum-duty concept - Levy of cess under Section 15 - Entitlement to refund of excess Oil Industry Development Cess paid on account of incorrect valuation - Appellant failed to establish that the incidence of duty had not been passed on, thereby attracting unjust enrichment Whether the refund of OID Cess claimed by the Appellant is admissible on merits in terms of valuation under Section 4 of the Central Excise Act, 1944 read with Section 15 of the Oil Industry (Development) Act, 1974 and Notification dated 28.03.2016, in the context of the COSA with M/s. CPCL ? - HELD THAT: - The Tribunal held that once OID Cess became an ad valorem levy, valuation had to be determined under the principles of Section 4 of the Central Excise Act. Where the transaction price did not separately recover OID Cess and the pricing under the crude oil sale agreement was fixed independently of such cess, the sale price had to be treated as a cum-duty price and the duty element had to be backed out. The verification report itself recorded that cess had been paid at 20% on the sale price and that the excess arose from adoption of ex-duty value instead of cum-duty value. The agreement and invoices showed that the price charged to the buyer comprised only the agreed price components and VAT, without inclusion of OID Cess. The subsequent correction of methodology from June 2016 onwards supported the finding that the earlier payments were made under an erroneous valuation method. The Tribunal therefore accepted that the excess payment was a direct consequence of incorrect valuation and could not be retained by the Department. Reliance was also placed on the Larger Bench decision in the appellant's own case, M/s. Oil and Natural Gas Corporation Limited Versus The Commissioner of GST & Central Excise, TiruchirappalliI [2024 (6) TMI 1417 - CESTAT CHENNAI (LB)], on the evidentiary standard for establishing refund entitlement. [Paras 12, 13, 14, 16, 17] The appellant established that excess OID Cess had been paid due to incorrect valuation, and the refund was admissible on merits subject to unjust enrichment. Whether the refund claim is hit by the doctrine of unjust enrichment in terms of Section 11B read with Section 12B of the Central Excise Act, 1944 ? - HELD THAT: - The Tribunal held that the presumption under Section 12B is rebuttable and must yield to cogent evidence. The crude oil sale agreement was treated as the decisive document because its pricing mechanism was exhaustive and specifically identified the levies recoverable from the buyer; while VAT and certain other levies were expressly provided for, OID Cess was not included as a recoverable component. That contractual structure showed that OID Cess was to be borne by the seller. The invoices also did not show any OID Cess element and reflected only base price and VAT. This position was independently corroborated by the Chartered Accountant's certificate certifying that the cess burden had been borne by the appellant, and by the buyer's confirmation that no amount towards OID Cess had been paid by it. In the absence of any contrary evidence from the Department, the Tribunal held that the documentary record effectively rebutted the statutory presumption. It further held that the cum-duty concept is a valuation principle and cannot, by itself, lead to an inference that the duty burden was passed on. [Paras 30, 31, 32, 33, 34] The appellant successfully proved that the incidence of OID Cess had not been passed on to the buyer, and the refund was therefore not hit by unjust enrichment. Final Conclusion: The Tribunal held that the appellant had paid excess OID Cess due to adoption of an incorrect assessable value instead of cum-duty valuation and had also rebutted the presumption of unjust enrichment through the contract, invoices, Chartered Accountant certification and buyer confirmation. The refund rejection was therefore set aside and the refund claim allowed with consequential relief in accordance with law.

2026 (8) TMI 151 - CESTAT MUMBAI Central Excise

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CENVAT credit on imported base oil remains available on documented duty despite factory receipt shortages.
CENVAT credit on imported base oil was available for the full Central Excise duty or CVD recorded in invoices and Bills of Entry, despite a shortage in the quantity physically received at the factory. Comparable earlier proceedings involving the same assessee had already accepted credit based on the duty shown in the prescribed documents notwithstanding short receipt. Applying that settled position, the demand denying proportionate credit for the shortage was unsustainable.

2026 (6) TMI 1470 - GUJARAT HIGH COURT Central Excise

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Penalty and interest under Central Excise rejected where exemption notification allowed competing interpretations and mandatory conditions were not met.
Penalty and interest under Central Excise were held unsustainable where the dispute involved plausible interpretations of the exemption notification and the adjudicating authority had already declined penalty. The Court treated that finding as sufficient to conclude that the mandatory conditions for invoking the penalty provision were not met. On the same facts, it accepted that interest was also not leviable. The Revenue's challenge therefore failed.

2026 (6) TMI 1418 - GUJARAT HIGH COURT Central Excise

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Issues: (i) Whether the Tribunal was right in setting aside the penalties while remanding the matter for de novo consideration of duty liability under Notification No. 20/98-CE. (ii) Whether penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 could survive when the dispute turned only on interpretation of the exemption notification and no intent to evade duty was found.

Issue (i): Whether the Tribunal was right in setting aside the penalties while remanding the matter for de novo consideration of duty liability under Notification No. 20/98-CE.

Analysis: The dispute concerned eligibility to the benefit of Notification No. 20/98-CE for clearances made by a 100% EOU to DTA purchasers. The Larger Bench had already held that such clearances were covered by the notification subject to satisfaction of its conditions. On that footing, the Tribunal remanded the matter only to verify fulfilment of the notification conditions and simultaneously held that penalties were unwarranted.

Conclusion: The Tribunal was correct in setting aside the penalties and limiting the remand to the question of duty liability and compliance with the notification conditions.

Issue (ii): Whether penalty under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 could survive when the dispute turned only on interpretation of the exemption notification and no intent to evade duty was found.

Analysis: Section 11AC and Rule 25 apply where non-payment or contravention is accompanied by fraud, collusion, wilful misstatement, suppression, or contravention with intent to evade duty. The controversy here was confined to the legal interpretation of the exemption notification, and the record did not disclose any intent to evade payment of duty. In such circumstances, the penal provisions were not attracted.

Conclusion: No penalty was leviable under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002.

Final Conclusion: Both questions were answered against the Revenue and in favour of the assessee, and the appeal failed.

Ratio Decidendi: Where the controversy is confined to interpretation of an exemption notification and there is no intent to evade duty, penalty provisions predicated on wilful contravention or evasion cannot be sustained, even if the duty issue is remanded for fresh consideration.

Penalty for exemption-notification disputes fails absent intent to evade duty, even when duty liability is remanded.
Penalty under Section 11AC of the Central Excise Act and Rule 25 of the Central Excise Rules is not attracted where the dispute concerns only interpretation of an exemption notification and there is no finding of intent to evade duty. The text also notes that, for clearances by a 100% EOU to DTA purchasers under Notification No. 20/98-CE, the matter may be remanded to verify compliance with the notification's conditions while penalties remain set aside. The stated principle is that penal provisions based on wilful suppression, misstatement, or evasion cannot survive in a pure exemption-interpretation dispute.

2026 (6) TMI 949 - GUJARAT HIGH COURT Central Excise

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Omission of charging provision without saving clause bars continued excise recovery proceedings and quashes pending demands.
Omission of a charging provision and its allied machinery rule, absent any saving clause, operates as repeal and prevents continued recovery proceedings founded solely on those provisions. Applying that principle, the Gujarat HC held that proceedings for excise duty, interest and penalty under Section 3A of the Central Excise Act and Rule 96ZQ of the Central Excise Rules could not be sustained after their omission, because no saving provision preserved the pending action. The impugned notices, recovery steps and related orders were therefore quashed as lacking jurisdiction once the statutory source of liability had ceased to operate.

Effect of omission as repeal - Survival of proceedings in absence of saving clause - Jurisdiction to continue recovery under omitted excise provisions -Proceedings and recovery initiated under Section 3A read with Rule 96ZQ - Recovery under omitted compounded levy provisions - Principles of Statutory Interpretation - Expressions “delete”, “omit”, and “repeal” - HELD THAT: - The Court held that the controversy stood concluded by Krishna Processors Vs. Union of India [2012 (11) TMI 954 - GUJARAT HIGH COURT], as affirmed in Shree Bhagwati Steel Rolling Mills Vs. Commissioner of Central Excise [2015 (11) TMI 1172 - SUPREME COURT]. It accepted that after omission of Rule 96ZQ with effect from 01.03.2001 and omission of Section 3A with effect from 11.05.2001, no proceedings could be initiated thereunder and no pending proceedings not already concluded could be continued in the absence of a saving clause. The Hon’ble Apex Court after considering the effect of the decision in case of M/s. Fibre Boards (P) Ltd. Bangalore Vs. Commissioner of Income Tax, Bangalore [2015 (8) TMI 482 - SUPREME COURT], wherein, it is held that, an “omission” would amount to a “repeal” after referring to several authorities of the Hon’ble Apex Court and G.P. Singh’s Principles of Statutory Interpretation, Section 6A of the General Clauses Act, 1897 and a passage in Halsbury’s Laws of England, arrived at the conclusion that “omission” would amount to a “repeal” for the purpose of Section 24 of the General Clauses Act and since the same expression namely “repeal” is used both in Section 6 and Section 24 of the General Clauses of the Act, the construction of the said expression in both the sections would therefore include within it “omissions” made by the legislature. The Court further accepted the principle stated by the Supreme Court that an omission amounts to a form of repeal. Since neither Section 3A nor the relevant rule remained on the statute book when the appellate and recovery orders were passed, the authorities lacked jurisdiction to continue the demand and recovery under those omitted provisions. [Paras 8, 12, 14] The impugned show cause notice, appellate orders and recovery action founded on Section 3A read with Rule 96ZQ were quashed as being without jurisdiction. Final Conclusion: The petition was allowed. The Court held that, after omission of Rule 96ZQ and Section 3A without any saving clause, the authorities had no jurisdiction to initiate or continue proceedings or recovery thereunder, and the impugned notice and consequential orders were therefore quashed.

2026 (6) TMI 894 - CESTAT KOLKATA Central Excise

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CENVAT credit on furnace oil for captive electricity generation remains admissible where power supports manufacturing activity.
CENVAT credit on furnace oil used to generate electricity remained admissible where the electricity was consumed partly in manufacturing and partly for factory office and canteen purposes, because the amended definition of "input" under Rule 2(k) of the CENVAT Credit Rules, 2004, after 01.04.2011, covers goods used for generation of electricity for captive use. The Tribunal treated electricity generated and used in connection with manufacturing activity within the factory as sufficient to retain input status for the furnace oil. On that basis, the denial of credit and the consequential demand for reversal with interest were held unsustainable and set aside.

2026 (7) TMI 1531 - CESTAT NEW DELHI Central Excise

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Issues: (i) Whether absorbent cotton wool and cotton bandages manufactured as surgical dressings were classifiable under CTH 5601 or CTH 3005; (ii) Whether generic allopathic medicines qualified for the concessional rate under Entry 37 of Notification No. 1/2011-C.E. dated 01.03.2011 as amended; (iii) Whether suppression with intent to evade duty justified invocation of the extended limitation period.

Issue (i): Whether absorbent cotton wool and cotton bandages manufactured as surgical dressings were classifiable under CTH 5601 or CTH 3005.

Analysis: Chapter 30 covers wadding, gauze, bandages and similar articles put up for retail sale for medical, surgical, dental or veterinary purposes, whereas Chapter 56 concerns textile wadding and articles thereof. The goods were manufactured under a drug licence to prescribed standards for surgical dressings, packed in retail sizes with batch particulars, expiry dates and MRP, and supplied for medical use. The relevant section and chapter notes exclude goods falling under heading 3005 from textile headings. These characteristics made heading 3005 the specific applicable heading notwithstanding that absorbent cotton wool is also described in heading 5601.

Conclusion: Absorbent cotton wool and cotton bandages were correctly classifiable under CTH 3005 and were dutiable; the finding is against the assessee.

Issue (ii): Whether generic allopathic medicines qualified for the concessional rate under Entry 37 of Notification No. 1/2011-C.E. dated 01.03.2011 as amended.

Analysis: Entry 37 covers medicaments, including those used in specified traditional and homeopathic systems. The expression "including" enlarges and does not restrict the scope of "medicaments"; accordingly, allopathic medicines are not excluded. The medicines were sold under their generic pharmacopoeial names and no Cenvat credit had been availed, while no material disproved compliance with the other notification conditions.

Conclusion: The allopathic medicines qualified for the concessional rate under the notification, and the demand denying that benefit was set aside; the finding is in favour of the assessee.

Issue (iii): Whether suppression with intent to evade duty justified invocation of the extended limitation period.

Analysis: The manufacturing activity for surgical medical products, the drug licence, and retail-pack declarations were not disclosed to the department. The undisclosed activity was detected during search, when substantial duty-unpaid finished goods were found, and a post-search payment was made. These facts established conscious concealment and evasion rather than a bona fide error.

Conclusion: Suppression with intent to evade duty was established and the extended limitation period was validly invoked; the finding is against the assessee.

Final Conclusion: Duty, interest and penalty relating to surgical absorbent cotton wool, cotton bandages, and the admitted other products remain sustainable, while the duty demand attributable to denial of the concessional rate for allopathic medicines cannot stand.

Ratio Decidendi: Goods put up and manufactured as retail surgical dressings for medical use fall under the medical-dressing tariff heading rather than the textile-wadding heading; an exemption for medicaments using inclusive language extends to allopathic medicaments when its stipulated conditions are fulfilled.

Medical dressing classification places retail surgical cotton products under the medicament heading, while generic allopathic medicines retain concessional treatment.
Retail-packed absorbent cotton wool and cotton bandages manufactured under a drug licence as surgical dressings for medical use fall under CTH 3005, rather than the textile-wadding heading, and remain dutiable. The concessional notification for medicaments uses inclusive language and therefore extends to generic allopathic medicines where its conditions, including non-availment of Cenvat credit, are met; the demand denying that benefit cannot stand. Non-disclosure of the manufacturing activity, drug licence and retail-pack details, detected during search alongside duty-unpaid goods, establishes suppression with intent to evade duty and permits the extended limitation period. Duty, interest and penalty remain sustainable for the surgical dressings and admitted other products.

Classification of absorbent cotton wool and cotton bandages manufactured as surgical dressings - classifiable under CTH 5601 or CTH 3005 - generic allopathic medicines - Concessional duty exemption under Entry 37 of Notification No. 1/2011-C.E. for allopathic medicaments - Extended limitation for suppression and clandestine removal - Strict Construction of Exemption Classification of absorbent cotton wool and surgical bandages - HELD THAT: - The products were admittedly manufactured in accordance with standards for surgical dressings, supplied for medical use and packed for retail sale. Heading 3005 covers wadding, gauze and bandages put up in retail packings for medical or surgical purposes, whether or not impregnated with pharmaceutical substances. The relevant Section and Chapter Notes exclude goods classifiable under Heading 3005 from textile headings; consequently, the specific classification was under CTH 3005. [Paras 6] The duty demand on absorbent cotton wool and cotton bandages, with consequential interest and penalty, was sustained. Concessional duty exemption for allopathic medicaments - Allopathic medicines manufactured and sold under their generic pharmacopoeial names were covered by the concessional-duty entry for medicaments under Notification No. 1/2011-CE, subject to fulfilment of its conditions. - HELD THAT: - The expression "medicaments", followed by the word "including" specified systems of medicine, was held to cover all kinds of medicaments and not merely those expressly enumerated. As the medicines were sold under the prescribed generic names and no Cenvat credit had been availed, and the Department produced no material to disprove compliance with the conditions, the appellant was entitled to the concessional rate. [Paras 7] The demand raised by denying the benefit of Notification No. 16/2012-CE was set aside. Extended limitation for suppression and clandestine removal - HELD THAT: - The appellant manufactured surgical dressings under a drug licence, printed batch particulars, expiry dates and retail prices on small packs, but did not disclose the activity to the Department. The undeclared manufacture and ready stock found during the raid, coupled with post-detection payment of duty and admission of clandestine removal, established suppression with intent to evade duty. [Paras 8] Invocation of the extended period in all four show cause notices was upheld; the accepted liability on phenyl, mineral water and de-ionized water was also sustained. Final Conclusion: The impugned orders were modified: the duty demand on surgical absorbent cotton wool and bandages, and invocation of extended limitation, were upheld, while the demand denying concessional duty on allopathic medicaments was set aside. The four appeals were partly allowed.

2026 (6) TMI 397 - CESTAT NEW DELHI Central Excise

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Issues: (i) Whether the CENVAT credit balance lying as on 01.03.2008 lapsed under rule 11(3) of the CENVAT Credit Rules, 2004 when the assessee manufactured both dutiable and exempted final products from common inputs; (ii) Whether an amount equal to 10%/5% of the value of exempted goods cleared in the domestic market could be demanded under rule 6(3) of the CENVAT Credit Rules, 2004 despite maintenance of separate accounts and non-availment of credit on inputs used exclusively for exempted clearances; (iii) Whether an amount equal to 10%/5% of the value of exempted goods exported under bond could be demanded under rule 6(3) of the CENVAT Credit Rules, 2004.

Issue (i): Whether the CENVAT credit balance lying as on 01.03.2008 lapsed under rule 11(3) of the CENVAT Credit Rules, 2004 when the assessee manufactured both dutiable and exempted final products from common inputs.

Analysis: Rule 11(3) applies where the final product itself becomes wholly exempt and the credit relatable to inputs in stock, in process, or contained in stock is required to be reversed. The assessee was manufacturing more than one final product from common inputs, and only some products had become exempt while others continued to remain dutiable. The credit could still be utilised for payment of duty on the dutiable final products under rule 3(4), and the rule could not be read to compel lapse of the remaining balance in such a situation.

Conclusion: The credit balance did not lapse under rule 11(3), and the demand on this count was rightly dropped.

Issue (ii): Whether an amount equal to 10%/5% of the value of exempted goods cleared in the domestic market could be demanded under rule 6(3) of the CENVAT Credit Rules, 2004 despite maintenance of separate accounts and non-availment of credit on inputs used exclusively for exempted clearances.

Analysis: Rule 6(3) gives an option to the assessee; it does not authorise the department to impose that option by demanding a fixed percentage of the value of exempted goods. The assessee maintained separate records and had not taken credit on inputs used exclusively for exempted goods cleared domestically. In such circumstances, the demand under rule 6(3) was unsustainable, and the fact that some amount had been deposited for a few months did not amount to a binding exercise of option for the entire year.

Conclusion: The domestic-clearance demand under rule 6(3) was not recoverable and was correctly dropped.

Issue (iii): Whether an amount equal to 10%/5% of the value of exempted goods exported under bond could be demanded under rule 6(3) of the CENVAT Credit Rules, 2004.

Analysis: Rule 6(6)(v) excludes goods removed without payment of duty for export under bond from the operation of rule 6(3). The exports were made under bond and were accepted by the proper officer, and the show cause notices did not allege any legally sustainable basis to deny the benefit of the export exemption framework. Accordingly, the percentage-based demand on exported goods was not tenable.

Conclusion: The demand on exported goods was unsustainable and was rightly dropped.

Final Conclusion: The order dropping the proceedings was upheld in full, and the department's appeals failed on all counts.

Ratio Decidendi: Rule 11(3) does not cause lapse of credit where only some products become exempt and the credit remains utilizable for dutiable final products, while rule 6(3) cannot be invoked to compel a percentage payment where separate accounts are maintained or where the clearances are exports under bond covered by rule 6(6)(v).

CENVAT credit lapse and rule 6 demands rejected where separate accounts and export under bond protected the assessee
Rule 11(3) of the CENVAT Credit Rules, 2004 does not cause lapse of accumulated credit where only some final products become exempt and other dutiable products continue to be manufactured from common inputs; the balance remains usable for duty payment on dutiable clearances, so the lapse demand was unsustainable. Rule 6(3) also does not permit a fixed percentage demand on exempted domestic clearances where separate accounts are maintained and no credit is taken on inputs used exclusively for exempt goods; that demand was therefore not recoverable. Goods exported under bond are excluded from rule 6(3) by rule 6(6)(v), so no percentage-based demand could be raised on such exports. The order dropping the proceedings was upheld in full.

Lapsing of CENVAT credit on exemption of one among multiple final products - demand of an amount equal to 10%/5% of the value of exempted final products cleared to domestic area in terms of rule 6(3) - Dutiable and exempted final products - maintenance of separate accounts and non-availment of credit on inputs used exclusively for exempted clearances - Export under bond of exempted goods and exclusion from Rule 6(3) Rule 11(3) lapsing of credit - Common inputs used for dutiable and exempt final products - CENVAT credit balance lying as on 01.03.2008 did not lapse merely because some final products manufactured from common inputs became exempt while other final products remained dutiable. - HELD THAT: - The Tribunal held that the show cause notice did not propose recovery of credit attributable to inputs lying in stock, in process, or contained in finished stock, but sought recovery of the entire opening balance. On the admitted position that common inputs were used for manufacture of both exempt and dutiable final products, rule 11(3) could not be applied so as to force lapsing of the balance credit, because credit remained utilizable for payment of duty on the final products that continued to be dutiable. The earlier decision in the respondent's own case in Sharp Menthol [2014 (12) TMI 952 - CESTAT NEW DELHI] was treated as settling this position, and the departmental attempt to enlarge the controversy beyond the show cause notice was rejected. [Paras 28, 30, 31, 32, 33] The demand based on alleged lapsing of the opening credit balance under rule 11(3) was rightly dropped. Rule 6(3) option with assessee - Separate accounts for exempted domestic clearances - An amount equal to 10% or 5% of the value of exempted goods cleared in the domestic market could not be demanded under rule 6(3) when the assessee maintained separate accounts, did not take credit on inputs used for exempt domestic clearances, and had not exercised any option under rule 6(3). - HELD THAT: - The Tribunal accepted the finding that separate accounts were maintained for dutiable and exempt goods and that no CENVAT credit had been taken on inputs used in the manufacture of exempt final products cleared domestically. It further held that rule 6(3) merely provides options to the assessee, and in the absence of exercise of such option the department cannot compel payment of 10% or 5% of the value of exempt goods. As there was also no proposal in the show cause notices to recover wrongly taken credit on the relevant inputs or input services, the demand under rule 6(3) was unsustainable. The plea that payment made for a few months amounted to irrevocable exercise of option was also rejected, since such case was not set up in the show cause notices or grounds of appeal and, in any event, re-credit had been permitted without objection. [Paras 42, 43, 44, 45, 46] The demand of 10% or 5% of the value of exempted goods cleared for home consumption was not maintainable and was correctly dropped. Rule 6(6)(v) export under bond - Exempted goods exported under bond - Rule 6(3) was inapplicable to exempted final products exported under bond, and the department could not sustain the export-related demand on a ground not contained in the show cause notices. - HELD THAT: - The Tribunal noted that the departmental appeal on this issue was confined to the period after amendment of the export notification, but the show cause notices contained no allegation founded on that amendment or on any prohibition against export of exempt or nil-rated goods under bond. That contention was therefore not open in appeal. On merits, the Tribunal held that by virtue of rule 6(6)(v), goods exported under bond stand outside rule 6(3), so the amount calculated as 10% or 5% of the value of exempted exported goods was not recoverable. The finding was reinforced by the fact that the exports had in fact been allowed under bond by the proper officer and those permissions were never challenged. [Paras 48, 49, 50, 54, 55] The demand relatable to exempted goods exported under bond was rightly rejected. Final Conclusion: The Tribunal upheld the common adjudication order dropping all three show cause notices. It held that the opening CENVAT credit did not lapse under rule 11(3), that no amount under rule 6(3) could be forced on exempt domestic clearances in the absence of exercise of option and where separate accounts were maintained, and that rule 6(3) was inapplicable to exempted goods exported under bond; accordingly, the departmental appeals were dismissed.

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