Excise duty on project price escalation claims fails when the taxable component is not proved and suppression is not established.

Excise duty on price escalation claims under a project contract was held unsustainable where the Revenue failed to prove, with evidence, that the entire escalation amount formed assessable value, particularly when bought-out items were procured separately and supplied directly to the customer's site. The note also states that the extended limitation period was unavailable because suppression with intent to evade duty was not established, so the penalty could not survive once the duty demand failed. The impugned order was set aside and the appeal succeeded in full.

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Issues: (i) whether central excise duty was payable on the price escalation claims raised under the project contract, including the amount attributable to bought-out items supplied directly to the customer's site; and (ii) whether the extended period of limitation and penalty were sustainable.

Issue (i): whether central excise duty was payable on the price escalation claims raised under the project contract, including the amount attributable to bought-out items supplied directly to the customer's site.

Analysis: The appellants produced invoices for the manufactured goods and also showed that the bought-out items were procured from outside and supplied directly to the customer's site. The record showed that the department had not established, on evidence, a reliable basis for apportioning the escalation amount between manufactured goods and bought-out items. On the available material, the Revenue did not prove that the entire escalation amount represented assessable value liable to duty.

Conclusion: The demand of duty on the escalation claim was unsustainable and was set aside.

Issue (ii): whether the extended period of limitation and penalty were sustainable.

Analysis: The project contracts, price-related transactions and clearances were not shown to have been suppressed with intent to evade duty in the manner required for invoking the longer limitation period. In the factual setting, the conditions for invoking the proviso to Section 11A(1) were not made out, and the penalty could not survive once the duty demand itself failed.

Conclusion: The extended period was not invocable and the penalty was not sustainable.

Final Conclusion: The impugned order was set aside and the appeal succeeded in full.

Ratio Decidendi: Excise duty cannot be sustained on an escalation claim unless the Revenue proves the taxable component with evidence and, absent proved suppression with intent to evade, the extended limitation period is unavailable.

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