Limitation bars Modvat credit reversal where the department already knew the relevant facts and issued notice too late.

Modvat credit reversal and consequential penalty were found to be barred by limitation because the disputed credit was taken on gate passes pre-authenticated by the jurisdictional excise authorities and verified with RT-12 returns, putting the department on notice of the relevant facts during the material period. As the show cause notice was issued nearly three years after the relevant date and proceedings had to be commenced within the normal limitation period, the demand and penalty could not be sustained. The impugned order was set aside, and the assessee succeeded solely on limitation without examination of the merits.

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Issues: Whether the demand for reversal of Modvat credit and the consequential penalty were barred by limitation.

Analysis: The disputed credit was taken on gate passes that had been pre-authenticated by the jurisdictional Central Excise authorities and had also been verified at the assessee's end along with RT-12 returns. In these circumstances, the department was held to have knowledge of the relevant facts during the material period. The show cause notice was issued nearly three years after the relevant date, whereas the proceedings were required to be initiated within the normal limitation period.

Conclusion: The demand and penalty were held to be time-barred and could not be sustained against the assessee.

Final Conclusion: The impugned order was set aside and the appeal succeeded solely on the ground of limitation, without examination of the merits.

Ratio Decidendi: Where the relevant facts are already within the department's knowledge, recovery proceedings cannot be sustained if initiated beyond the applicable limitation period.

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