Extended limitation and classification-based excise demand fail where suppression and proof of misdescription are not established.

In a central excise classification dispute, the extended period of limitation could not be invoked because the assessee had filed classification declarations and ER-1 returns, and the Revenue showed no deliberate suppression or wilful misstatement. Mere disagreement on classification was insufficient to attract penal consequences under Section 11AC. On merits, the Revenue also failed to prove that goods cleared as HRBO flakes were actually stearic acid: the test reports were inconclusive, the technical opinion was limited, and buyer statements could not be relied on without compliance with Section 9D and effective cross-examination. The demand and penalties were therefore unsustainable.

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Issues: (i) whether the demand was barred by limitation and the extended period could be invoked on the allegation of suppression; (ii) whether the Revenue had proved, on merits, that the goods cleared as HRBO flakes were stearic acid so as to sustain the duty demand and penalties.

Issue (i): whether the demand was barred by limitation and the extended period could be invoked on the allegation of suppression.

Analysis: The appellants had filed classification declarations and ER-1 returns showing HRBO flakes and stearic acid separately. The Revenue failed to show that the alleged non-disclosure was supported by deliberate suppression or wilful misstatement. Mere dispute over classification, without positive evidence of intent to evade duty, was insufficient to sustain invocation of the extended period or the penal consequence under Section 11AC of the Central Excise Act, 1944.

Conclusion: The extended period of limitation was not invokable and the demand was time-barred.

Issue (ii): whether the Revenue had proved, on merits, that the goods cleared as HRBO flakes were stearic acid so as to sustain the duty demand and penalties.

Analysis: The test reports were not conclusive to establish that the samples were stearic acid, and the available technical opinion only indicated characteristics of hydrogenated material. The statements of buyers were not reliable in the absence of proper compliance with the procedure for admitting such statements in evidence and without effective cross-examination as required by Section 9D of the Central Excise Act, 1944. The alleged invoice manipulation was also not quantified or corroborated by positive evidence. In these circumstances, the Revenue's case rested on presumption rather than proof.

Conclusion: The Revenue failed to prove that the appellants cleared stearic acid in the guise of HRBO flakes; the demand and penalties could not be sustained.

Final Conclusion: The impugned order was set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Extended limitation and penalties under the central excise law cannot be sustained without proof of wilful suppression or intent to evade duty, and untested or procedurally inadmissible statements cannot be relied upon to prove classification-based evasion.

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