Full disclosure defeats extended limitation, with undervaluation allegations and retrospective penalty provisions found inapplicable.

Full disclosure of purchase invoices and regular returns defeated allegations of collusion and undervaluation, because the Department could not show that the declared raw material price was a sham or that the finished product was artificially underassessed. The extended limitation period was unavailable, as fraud, wilful misstatement, suppression, or collusion were not established, so a notice issued beyond the normal period could not stand. The note also states that interest and penalty provisions could not be applied retrospectively to liabilities arising before their commencement. On that basis, the duty confirmation, interest, and penalties were set aside.

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Issues: (i) Whether the assessable value of the finished product could be enhanced on the footing that the raw material was deliberately undervalued in collusion between the parties; (ii) whether the demand was barred by limitation and the penal provisions could be invoked for the period in dispute, including the provisions relating to interest and penalty.

Issue (i): Whether the assessable value of the finished product could be enhanced on the footing that the raw material was deliberately undervalued in collusion between the parties.

Analysis: The price at which the raw material was purchased was supported by the market material on record and by contemporaneous invoices filed with the Department. The invoices disclosed the higher duty-paid value, the discounted sale value, and the availing of Modvat credit, leaving no concealment or suppression of the transaction. On the evidence, the Department failed to establish that the declared purchase price was a sham or that the assessable value of the finished product had been artificially depressed by collusion.

Conclusion: The allegation of collusion and undervaluation was not proved, and the enhancement of assessable value was unsustainable, in favour of the assessee.

Issue (ii): Whether the demand was barred by limitation and the penal provisions could be invoked for the period in dispute, including the provisions relating to interest and penalty.

Analysis: The assessee had regularly filed returns and produced the relevant invoices before the Department, so the ingredients required for the extended period, namely fraud, collusion, wilful misstatement, or suppression of facts, were absent. The demand notice was issued beyond the normal period and could not be sustained under the proviso to the limitation provision. The provisions creating liability to interest and penalty could not be applied retrospectively to duties that had become payable before the relevant commencement date, and the subordinate authority was bound to follow the Tribunal's settled view on that question.

Conclusion: The demand was time-barred, and the penalty and interest provisions were inapplicable for the relevant period, in favour of the assessee.

Final Conclusion: The order confirming duty, interest, and penalties was set aside in full, and the appeals succeeded.

Ratio Decidendi: Where the relevant facts are fully disclosed to the Department and the material on record does not establish fraud, collusion, wilful misstatement, or suppression of facts, the extended period of limitation and consequential penalty or interest provisions cannot be invoked; retrospective application of such provisions is impermissible for liabilities that arose before their commencement.

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