Extended limitation and excise penalty require proof of suppression or intent to evade, not mere short payment on declared clearances.

Extended limitation under the proviso to Section 11A(1) and penalty under Section 11AC were not justified where short payment arose from captive consumption valuation, the clearances were reflected in ER-1 returns, and duty was paid with interest when pointed out. The record did not show deliberate suppression, wilful misstatement, or intent to evade duty, especially since the duty paid by one unit was available as Cenvat credit to the other. The demand was therefore confined to the normal limitation period, and the penalty was held unsustainable; only the demand within the normal period remained.

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Issues: Whether the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, 1944 could be invoked, and whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable.

Analysis: The short levy arose from valuation of goods transferred for captive consumption between the appellant's units. For the relevant periods, valuation had to be made under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 or under Rule 8 of the Central Excise Valuation Rules, 2000, and duty was therefore short-paid. However, the record showed that the duty amount was small, was paid with interest when pointed out, and the clearances were reflected in the ER-1 returns. Since the duty paid by one unit was available as Cenvat credit to the other, the facts did not support any deliberate suppression, wilful misstatement, or intent to evade duty. The requirements for invoking the extended period and for imposing penalty under Section 11AC were treated as identical.

Conclusion: The extended period was not invocable and the penalty under Section 11AC was not sustainable. The duty demand was confined to the normal limitation period only.

Final Conclusion: The appeal succeeded to the extent that the demand beyond the normal period and the penalty under Section 11AC were set aside, while the duty demand within the normal period was maintained.

Ratio Decidendi: Extended limitation and Section 11AC penalty require proof of deliberate suppression or wilful misstatement with intent to evade duty, and mere short payment on declared captive clearances is insufficient.

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