Limitation on Modvat credit demand fails where the department already knew the transfer practice and suppression was not established

Modvat credit demands and consequential penalties were stated to be time-barred because the department had already been aware of the assessee's accounting and transfer practice through earlier notices and proceedings. The record also showed continuing reversals during the relevant period, so suppression of facts could not be sustained to invoke the extended limitation period. On that basis, the demand was held barred by limitation and the finding of suppression was rejected, with the impugned order set aside and consequential relief granted.

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Issues: Whether the demand of Modvat credit and consequential penalties was barred by limitation on the facts of the case.

Analysis: The same accounting and transfer practice between the two units had already been the subject matter of earlier show-cause notices and departmental proceedings. The department was aware of the manner in which the components were transferred and credit was taken, and the record also showed continuing reversals during the relevant period. In these circumstances, the finding of suppression of facts to justify the extended period was not sustainable.

Conclusion: The demand was barred by limitation and the finding on suppression was rejected.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Where the revenue is already aware of the assessee's procedure and the same practice has been the subject of earlier proceedings, the extended period cannot be invoked in the absence of sustainable suppression of facts.

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