Extended limitation and excise penalty are unsustainable where short duty is paid with interest after audit and no mala fide is shown.

Where short-paid excise duty was voluntarily made good with interest after audit detected the discrepancy, and no mala fide intention or suppression was shown, invocation of the extended period of limitation was not justified. On that basis, the proposed demand proceedings and penalty were treated as unsustainable under the Central Excise framework. The note further states that, once duty and interest had already been paid, only appropriation of the amount was warranted and no further penal action was called for.

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Issues: Whether the show-cause notice invoking the extended period of limitation and the consequent penalty under the Central Excise Act were sustainable where short duty was paid along with interest after audit pointed out the discrepancy.

Analysis: The goods were cleared to a job worker for processing and later returned and cleared on payment of excise duty. Although duty had not been paid at the intermediary clearance stage, the short payment was made good with interest immediately after it was pointed out by audit. In these circumstances, the element of mala fide intention was absent. The notice was therefore issued without justification under the extended period, and the demand proceedings could not be sustained. Since the duty and interest had already been paid, only appropriation of the amount was called for and no further penal action was warranted.

Conclusion: The show-cause notice was barred by limitation and the penalty was not leviable; the order dropping the penalty was / was upheld in favour of the assessee.

Final Conclusion: The Revenue's challenge failed, and the appellate order setting aside the penalty was maintained.

Ratio Decidendi: Where short-paid excise duty is voluntarily paid with interest after being pointed out by audit and there is no evidence of mala fide intent or suppression, invocation of the extended period of limitation and imposition of penalty are unsustainable.

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