Extended limitation and Section 11AC penalty apply where suppression is alleged and verified before notice, with reduced penalty only on compliance.

Extended limitation is attracted where the show cause notice alleges non-maintenance of prescribed records, non-disclosure of material facts in returns, and suppression detected during audit and investigation; on those facts, the omission is treated as more than a procedural lapse. Penalty under Section 11AC is upheld where duty liability is verified before notice and the case falls within the statutory penalty framework, though a reduced penalty option may still be available. A timely payment route of 25% of the duty as penalty within 30 days operates only on strict compliance, failing which the full penalty revives.

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Issues: (i) whether the extended period of limitation was invocable on the facts stated in the show cause notice and the record; (ii) whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable, including the option to discharge 25% of the duty as penalty within the stipulated period.

Issue (i): whether the extended period of limitation was invocable on the facts stated in the show cause notice and the record.

Analysis: The show cause notice specifically recorded non-maintenance of prescribed records, non-disclosure of relevant facts in the periodical returns, and discovery of the suppression only during audit and subsequent investigation. The record also showed detailed verification by the department before finalising the duty amount. On those facts, the omission was not a mere procedural lapse, and the ingredients for invoking the extended period were treated as established.

Conclusion: The extended period of limitation was rightly invoked against the assessee.

Issue (ii): whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable, including the option to discharge 25% of the duty as penalty within the stipulated period.

Analysis: The duty liability had been worked out after verification and before issuance of the notice, so the case was held to fall within the statutory framework relied upon by the Revenue for penalty. The plea that penalty could not be imposed absent determination under Section 11A(2B) was rejected on the facts. However, applying the line of authorities permitting reduced penalty on timely payment, an option was directed to pay 25% of the duty as penalty within 30 days, while default would revive the full penalty.

Conclusion: Penalty under Section 11AC was upheld, with an option to pay 25% of the duty as penalty within 30 days in full discharge of the penalty liability.

Final Conclusion: The challenge to the duty demand and penalty failed, and the Revenue's view on limitation and penal liability was sustained, subject to the limited benefit of reduced penalty on timely compliance.

Ratio Decidendi: Where the show cause notice specifically alleges non-disclosure or suppression of material facts and the department determines the liability after verification and investigation before notice, the extended period is invocable and penalty under Section 11AC can follow, with any permissible reduced-penalty benefit operating only on strict compliance with the stipulated conditions.

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