Extended limitation in excise cannot rest on procedural lapse where transactions are fully recorded and revenue neutral.

Extended limitation under the proviso to Section 11A of the Central Excise Act, 1944 is not available where job-work transactions are fully recorded, revenue neutral, and there is no evidence of fraud, wilful suppression, misstatement, or intent to evade duty. Mere non-compliance with the procedural requirements under Rule 57F and Notification No. 214/86, without clandestine or unaccounted activity, does not establish suppression for extended limitation. As the duty demand was barred by limitation and could not be sustained, the related penalties also failed and were set aside with the demand.

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Issues: Whether the demand was barred by limitation as the transactions were fully recorded and revenue neutral, and whether penalties could survive when the duty demand failed.

Analysis: The inputs were sent for job work, converted into intermediate goods, and the movements were fully reflected in the books of account of both assessees. There was nothing clandestine or unaccounted in the transactions. The dispute arose only because the prescribed procedure under Rule 57F and Notification No. 214/86 was not followed. The Court held that the extended period under the proviso to Section 11A of the Central Excise Act, 1944 is available only where there is fraud, wilful suppression, misstatement, or similar conduct with intent to evade duty. In a revenue neutral situation, where no duty could have been evaded and the transactions were otherwise disclosed in the records, non-compliance with procedure could not be treated as suppression with intent to evade duty.

Conclusion: The demand was barred by limitation and the duty demand could not be sustained.

Conclusion: Penalties could not survive once the duty demand was set aside.

Final Conclusion: The impugned orders were set aside and the appeals succeeded with consequential relief.

Ratio Decidendi: The extended limitation period for excise demand cannot be invoked in a revenue neutral case where the transactions are fully recorded and there is no intent to evade duty; penalties also fall when the duty demand fails.

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