Modvat credit exceeding duty payable defeats extended limitation and prevents invocation of time-barred duty demand penalties.

Where the available Modvat credit on inputs exceeded the duty payable on finished goods, intention to evade duty could not be inferred and the extended period of limitation was unavailable. The demand period fell between 1-4-1997 and 14-11-1997, while the show cause notice was issued on 27-6-2000, so the duty demand and penalties were held time-barred. The governing principle applied was that the extended limitation period cannot be invoked when the demand is fully covered by available credit and no fraudulent intent or suppression is established.

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Issues: Whether the extended period of limitation could be invoked for the duty demand and penalties when the available Modvat credit exceeded the duty payable on the finished goods.

Analysis: The period in dispute was 1-4-1997 to 14-11-1997, while the show cause notice was issued on 27-6-2000. The available Modvat credit on inputs was higher than the duty payable on the finished products. In such circumstances, the intention to evade duty could not be inferred, and the ratio governing non-invocation of the extended period where the demand is covered by available credit applied to the case.

Conclusion: The extended period of limitation was not invocable, and the duty demand and penalties were time-barred.

Ratio Decidendi: Where the Modvat credit available is higher than the duty payable, the element of intention to evade duty is absent and the extended period of limitation cannot be invoked.

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