Extended limitation and penalty fail where disclosed mounting activity is revenue neutral and no suppression or mala fide intent is shown.

Extended limitation under central excise law was unavailable where the assessee had separately discharged service tax on mounting activity, paid excise duty on fabricated bodies, and the department had accepted the arrangement without objection. Because the activity was disclosed, carried out under separate purchase orders, and the duty paid was creditable to the customer, the transaction was treated as revenue neutral and there was no positive suppression, misstatement, or mala fide intent to evade duty. Penalty also failed on the same facts, as the basis for penal action did not survive. The demand was confined to the normal period, remanded for quantification after credit for service tax already paid, and penalty was deleted.

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Issues: (i) whether the extended period of limitation could be invoked in respect of the demand on the footing that the mounting charges formed part of the assessable value, and (ii) whether penalty under the central excise law was sustainable.

Issue (i): whether the extended period of limitation could be invoked in respect of the demand on the footing that the mounting charges formed part of the assessable value.

Analysis: The appellant had been discharging service tax on the mounting activity while paying central excise duty on the fabricated bodies, and the department had accepted that position without objection. The activity was carried out under separate purchase orders, and the duty paid by the appellant was available as credit to the customer, making the arrangement revenue neutral. In the absence of positive suppression, misstatement, or mala fide intention to evade duty, the longer limitation period was not available.

Conclusion: The extended period was not invocable for the disputed demand, and the demand beyond the normal period was barred by limitation.

Issue (ii): whether penalty under the central excise law was sustainable.

Analysis: Since the appellant had disclosed the mounting activity and paid service tax thereon, and the entire arrangement was found to be revenue neutral without mala fide conduct, the foundation for penalty did not survive.

Conclusion: Penalty was not sustainable and was set aside.

Final Conclusion: The demand was confined to the portion within limitation, which was remanded for quantification after granting credit for service tax already paid, and the penalty was deleted.

Ratio Decidendi: Extended limitation and penalty cannot be sustained where the assessee's conduct lacks suppression or mala fide intent and the transaction is revenue neutral.

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