Prior departmental knowledge defeats suppression and limits demand to the normal period, with duty and penalty remanded for re-quantification.

Prior departmental knowledge of production and clearances negated suppression, so the extended limitation period for demand could not be invoked; the demand survived only for the normal period. Because the larger-period demand was set aside, the duty and consequential penalty had to be re-quantified on the reduced basis, and the matter was remanded to the Original Authority for fresh computation of duty and reconsideration of penalties in accordance with law.

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Issues: (i) whether the extended period for demand was invokable on the ground of suppression of facts; (ii) whether the duty and consequential penalty required re-quantification and remand.

Issue (i): Whether the extended period for demand was invokable on the ground of suppression of facts.

Analysis: The department had prior knowledge of the production and clearances and had issued letters calling upon the assessee to follow the procedure. On those facts, the omission to stop the clearances or to proceed earlier negatived the allegation of suppression. The demand, therefore, could not be sustained for the larger period, though it remained open for the normal period.

Conclusion: The extended period was not invokable and the demand was sustainable only for the normal period, in favour of the assessee on this issue.

Issue (ii): Whether the duty and consequential penalty required re-quantification and remand.

Analysis: Since the demand for the larger period was set aside and only the demand for the normal period survived, the quantum of duty and the related penalty had to be recomputed accordingly. The penalties imposed under the Central Excise Rules also required reconsideration in accordance with law after re-determination of duty.

Conclusion: The matter was remanded to the Original Authority for re-quantification of duty and penalty, partly in favour of the assessee.

Final Conclusion: The demand was curtailed to the normal period, and the duty and penalty were sent back for fresh quantification in accordance with law.

Ratio Decidendi: Where the department has prior knowledge of the manufacture and clearances, the extended period cannot be invoked for suppression, and any surviving demand and penalty must be reworked on the basis of the normal period only.

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