Extended limitation and valuation under excise law require exclusion of suppression and a wholesaler's profit margin, not just marketing expenses.

Extended limitation for differential duty could not be sustained where the department already knew the essential facts from earlier correspondence, price-list proceedings and audit material; suppression by the assessee was not established, so the demand was time-barred. Assessable value under section 4 also had to reflect the manufacturer's normal wholesale price: when the price relied on was a related buyer's retail price, deduction of marketing expenses alone was insufficient because the wholesaler's margin of profit also had to be excluded. The valuation adopted by the Collector was therefore incorrect, and the departmental attempt to include additional amounts collected by the buyer was rejected.

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Issues: (i) whether the demand for differential duty was barred by limitation and the extended period could be invoked on the footing of suppression of material facts; (ii) whether the assessable value of the air-conditioners had to be determined on the basis of the retail price charged by the related buyer, with deductions only for marketing expenses, or whether the wholesaler's margin of profit also had to be excluded.

Issue (i): whether the demand for differential duty was barred by limitation and the extended period could be invoked on the footing of suppression of material facts.

Analysis: The record showed that the department had long been aware that only a negligible portion of the clearances was made at the factory gate, that almost the entire production was routed to Lloyds, and that Lloyds was treated as a related person. The earlier correspondence, price-list proceedings and departmental audit material demonstrated knowledge of the relevant facts well before the show-cause notice. In these circumstances, the failure to act earlier was attributable to departmental inaction and not to suppression by the assessee.

Conclusion: The extended period could not be invoked and the entire demand was time-barred.

Issue (ii): whether the assessable value of the air-conditioners had to be determined on the basis of the retail price charged by the related buyer, with deductions only for marketing expenses, or whether the wholesaler's margin of profit also had to be excluded.

Analysis: Assessable value under section 4 had to reflect the manufacturer's normal wholesale price. Where the price relied upon was the retail price charged by the related buyer to consumers, mere deduction of the buyer's marketing expenses was insufficient because the price also contained the wholesaler's margin of profit. The proper approach required exclusion of that margin as well, and the material on record did not permit a correct quantification on the existing basis. The department's attempt to add the extra amounts collected by Lloyds was also untenable on the framing of the notice and the limited factual foundation available.

Conclusion: The valuation adopted by the Collector was incorrect and the department's contention on inclusion of extra amounts was rejected.

Final Conclusion: The assessee succeeded on limitation and on valuation, and the departmental appeal failed.

Ratio Decidendi: Where the department is already aware of the essential facts, the extended limitation cannot be sustained on suppression, and assessable value must be based on the manufacturer's wholesale price by excluding the intermediary's margin of profit, not merely its marketing expenses.

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