Final settlement order bars reopening of settled duty issues; belated demand on inputs and capital goods was time-barred.

A final settlement order under section 32M of the Central Excise Act, 1944 was treated as conclusive for the finished goods, so a further demand on inputs and capital goods used in their manufacture was held unsustainable and would amount to double taxation where the exemption conditions under Notification No. 1/95-CE were satisfied. The show cause notice was also held time-barred because the department already knew the relevant facts, the issue had been dealt with in earlier proceedings, and the extended period could not be invoked merely by describing the default as continuing. The duty demand was therefore set aside with consequential relief.

---

---

Issues: (i) Whether duty could be demanded again on inputs and capital goods used in manufacture of finished goods when duty on the finished goods had already been settled by the Settlement Commission; (ii) Whether the show cause notice demanding duty was barred by limitation.

Issue (i): Whether duty could be demanded again on inputs and capital goods used in manufacture of finished goods when duty on the finished goods had already been settled by the Settlement Commission.

Analysis: The same inputs and capital goods that formed the basis of the demand had been used in manufacture of the finished goods. Duty on the finished goods had already been settled and paid under the order of the Settlement Commission. In view of the conclusive nature of a settlement order under section 32M of the Central Excise Act, 1944, matters covered by such order could not ordinarily be reopened. Once duty on the finished goods had attained finality, a further demand on the raw materials and capital goods used up in producing those goods would amount to double taxation. The goods were not cleared as such, and the exemption conditions under Notification No. 1/95-CE were satisfied by payment of duty on the finished goods.

Conclusion: The demand of duty on the inputs and capital goods was not sustainable.

Issue (ii): Whether the show cause notice demanding duty was barred by limitation.

Analysis: The demand related to a period long before the notice was issued, and the department was already aware of the facts and the proceedings relating to duty on the finished goods. The appellant had also paid duty on depreciated value of the capital goods at the time of debonding, which had been accepted. In these circumstances, the extended period could not be invoked merely by describing the default as continuing, because the department could have raised the present demand along with the earlier proceedings. The delay in issuing the notice made the demand time-barred.

Conclusion: The show cause notice was barred by limitation.

Final Conclusion: The duty demand was unsustainable both on merits and on limitation, and the impugned order was set aside with consequential relief.

Ratio Decidendi: A settlement order attaining finality under section 32M of the Central Excise Act, 1944 bars reopening of matters covered by it, and a demand raised belatedly on the same factual foundation cannot be sustained when the department had prior knowledge of the dispute.

---