Debatable exemption interpretation bars extended limitation and penalty where assessee acted on departmental certificates and prevailing judicial views

Where liability turned on a debatable interpretation of "feedstock" under Notification No. 4/97-C.E., the Tribunal held that the extended period could not be invoked because the assessee had obtained furnace oil against departmental CT-2 certificates and the relevant facts were already within the Revenue's knowledge. Suppression, misstatement, or mala fide intent was therefore not established, so the demand survived only for the period within limitation and was remanded for quantification. On penalty, the Tribunal held that reliance on prevailing judicial views and departmental certificates negated deliberate default, so the penalty was set aside.

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Issues: (i) Whether the demand could be sustained for the extended period in the absence of suppression or misstatement; (ii) Whether penalty was leviable where the assessee had acted on the basis of existing judicial views and CT-2 certificates issued by the department.

Issue (i): Whether the demand could be sustained for the extended period in the absence of suppression or misstatement.

Analysis: The controversy turned on the interpretation of the expression "feedstock" under Notification No. 4/97-C.E. and had been the subject of conflicting decisions by judicial and quasi-judicial authorities during the relevant period. The assessee had obtained furnace oil against CT-2 certificates issued by the department after filing the requisite applications, and the facts were therefore within the knowledge of the Revenue. In such circumstances, the Tribunal held that suppression, misstatement, or mala fide intention could not be attributed to the assessee, and the extended period was not invocable.

Conclusion: The demand was not sustainable for the extended period and was restricted to the portion falling within limitation, in favour of the assessee.

Issue (ii): Whether penalty was leviable where the assessee had acted on the basis of existing judicial views and CT-2 certificates issued by the department.

Analysis: Since the issue was legally debatable and the assessee had acted on a view supported by then-prevailing decisions as well as departmental issuance of CT-2 certificates, no deliberate suppression or misstatement was established. Once the foundation for invoking penal consequences was absent, the imposition of penalty could not be justified.

Conclusion: Penalty was set aside, in favour of the assessee.

Final Conclusion: The duty demand was confined to the period within limitation, the matter was remanded for quantification of that limited liability, and the penalties were deleted.

Ratio Decidendi: Where a levy turns on a debatable interpretation of an exemption notification and the assessee has acted openly on departmental certificates and prevailing judicial views, the extended period and penalty cannot be sustained absent suppression or misstatement.

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