Extended limitation for Modvat credit reversal fails absent wilful suppression, and related penalties fall with the time-barred demand.

Extended limitation for reversal of Modvat credit could not be invoked where the assessee had maintained statutory records, filed duty-related returns and disclosed the consignments to departmental officers. The material did not establish deliberate suppression, wilful misstatement or positive collusion with intent to evade duty; at most, it showed difficulty in tracing the original source of scrap after mixing at the supplier's end. The demand was therefore held time-barred, and the consequential penalties could not survive.

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Issues: Whether the extended period of limitation could be invoked for reversal of Modvat credit and consequential penalties when the assessee had maintained records and filed duty-related documents with the department.

Analysis: The allegation was that the inputs received by the assessee did not correlate with the duty-paying documents and were non-duty paid. The finding on limitation turned on whether there was evidence of deliberate suppression or misstatement of material facts with intent to evade duty. The records showed that the assessee received the consignments under gate passes or endorsed gate passes, entered them in statutory registers, filed the relevant abstracts with RT-12 returns, and the documents were checked and defaced by departmental officers. The material relied on by the Revenue did not establish any positive collusion or suppression by the assessee; at best, it showed difficulty in identifying the original source of scrap after mixing at the suppliers' end.

Conclusion: The extended period of limitation was not available. The demand was barred by limitation, and the penalty could not survive.

Final Conclusion: The order confirming the demand and penalties was set aside, and the appeals were allowed.

Ratio Decidendi: In the absence of proved wilful suppression or misstatement with intent to evade duty, and where the assessee had disclosed the relevant transactions through regular statutory records and returns, the extended period of limitation cannot be invoked and consequential penalties fail.

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