Extended limitation cannot be invoked on facts already known to the department; time-barred duty demand defeats penalty too.

Where the department already possessed the relevant facts from an earlier inspection and show-cause proceedings based on the same material, the extended limitation period under the proviso to Section 11A of the Central Excise Act could not be invoked because no subsequent suppression or fraud was established. The resulting duty demand was therefore time-barred. Once the demand failed on limitation, the penalty under Rule 173-Q, which depended on the same allegation of suppression and contravention, could not survive and was also set aside.

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Issues: (i) Whether the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944 was available to the department on the facts of the case; (ii) whether penalty under Rule 173-Q of the Central Excise Rules, 1944 could be sustained when the duty demand itself was held to be time-barred.

Issue (i): Whether the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944 was available to the department on the facts of the case.

Analysis: The demand arose from the same inspection and panchnama, and earlier show-cause notices had already been issued on the basis of the same material. The relevant facts were therefore already within the department's knowledge, and the later notice could not be justified as arising from a subsequently discovered suppression or fraud. In these circumstances, the statutory extended period could not be invoked.

Conclusion: The extended period of limitation was not available to the department and the demand was time-barred, in favour of the assessee.

Issue (ii): Whether penalty under Rule 173-Q of the Central Excise Rules, 1944 could be sustained when the duty demand itself was held to be time-barred.

Analysis: Once the demand itself failed on limitation, the foundation for penalty on the allegation of evasion by suppression of facts and contravention of the Rules disappeared. The Court also accepted that, on the facts, the imposition of penalty was not sustainable.

Conclusion: Penalty under Rule 173-Q could not be levied, in favour of the assessee.

Final Conclusion: The questions of law were answered against the department and the appeal was dismissed, leaving the assessee successful on limitation as well as penalty.

Ratio Decidendi: Where the department already had knowledge of the material facts from earlier proceedings founded on the same inspection, the extended period under the proviso to Section 11A cannot be invoked, and a penalty predicated on such time-barred demand cannot survive.

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