Prompt disclosure and vague trade notice defeated excise demand; belated action and no mala fides also ruled out penalty.

Prompt disclosure of the product to excise authorities and an immediate request for clarification weighed against the department's reliance on a general trade notice that did not specifically resolve the liability of the goods in question. On those facts, no mala fide intention was shown. A demand raised after about three years was therefore treated as stale and time-barred, and the absence of mala fides also undermined the basis for penalty. The duty demand and penalty were set aside in favour of the assessee.

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Issues: Whether the duty demand and penalty could be sustained when the assessees had promptly approached the excise authorities for clarification, the departmental response was only a general trade notice, and the demand was raised after about three years.

Analysis: The assessees had disclosed their product to the department immediately after the budget and sought a decision on excisability. The departmental reply did not specifically answer the position of the assessees' product, and the trade notice did not clearly resolve the liability of the particular goods in question. In these circumstances, the record disclosed no mala fide intention. The long delay in raising the demand made the claim stale, and the foundation for penalty was also absent.

Conclusion: The duty demand was time-barred and the penalty was not justified; both were set aside in favour of the assessee.

Ratio Decidendi: Where an assessee promptly discloses the goods to the department and seeks clarification, a vague or general departmental notice does not displace limitation, and a belated demand coupled with absence of mala fides cannot sustain penalty.

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