Extended limitation cannot apply where duty dispute is revenue neutral and the department knew the material facts.

A duty demand on intermediate HDPE/PP strips was treated as time-barred where the assessee operated under a small-scale exemption known to the jurisdictional authorities, the strips arose as an inevitable stage in manufacture, and no earlier departmental objection had been raised. The availability of credit on input granules also made the matter revenue neutral, so the extended limitation period could not be invoked in the absence of mala fide intent to evade duty. The demand was accordingly set aside.

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Issues: Whether the duty demand on intermediate HDPE/PP strips was barred by limitation and whether the extended period could be invoked.

Analysis: The demand was raised beyond the normal period. The assessee had availed the small scale exemption with the knowledge of the jurisdictional authorities, and the emergence of HDPE/PP strips was an inevitable intermediate stage in the manufacture of woven fabrics. No objection had been raised by the department earlier. The assessee would also have been entitled to credit of duty paid on granules, which made the situation revenue neutral and negatived any motive to evade duty.

Conclusion: The demand was hit by limitation and the extended period was not invocable. The demand was set aside and the appeals were allowed in favour of the assessee.

Ratio Decidendi: Where the department has knowledge of the material facts, the assessee acts under an approved exemption regime, and the dispute is revenue neutral, the extended period of limitation cannot be invoked in the absence of mala fide intent to evade duty.

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