Deemed exports and limitation under central excise: disclosed returns blocked extended period and penalties were set aside.

Deemed exports are not to be clubbed for computing Domestic Tariff Area clearances, so the calculation adopted in the impugned order was unsustainable and the issue favoured the assessee. Where the duty demand was based entirely on ER-II returns already filed by the assessee, the Revenue could not allege suppression or misdeclaration to invoke the extended period of limitation. Execution of a B-17 bond did not exclude application of Section 11A of the Central Excise Act, 1944, so the demand and consequential penalties were held unsustainable on limitation and were set aside.

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Issues: (i) whether deemed exports could be clubbed for the purpose of calculating Domestic Tariff Area clearances, and (ii) whether the duty demand and consequential penalties were barred by limitation when the entire basis of the show cause notice was derived from ER-II returns and the assessee had executed a B-17 bond.

Issue (i): whether deemed exports could be clubbed for the purpose of calculating Domestic Tariff Area clearances.

Analysis: The Tribunal applied the settled principle that deemed exports are not to be clubbed for the purpose of computing DTA clearances. On that footing, the calculation adopted in the impugned order was unsustainable.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): whether the duty demand and consequential penalties were barred by limitation when the entire basis of the show cause notice was derived from ER-II returns and the assessee had executed a B-17 bond.

Analysis: Since the demand was founded entirely on returns filed by the assessee, the facts were already disclosed to the Revenue and suppression of facts or misdeclaration could not be alleged. The Tribunal also held that execution of a B-17 bond does not take the demand outside the scope of Section 11A of the Central Excise Act, 1944, and therefore the extended period could not be invoked merely on that basis.

Conclusion: The demand was held to be unsustainable on limitation, and the penalties were also set aside.

Final Conclusion: The appeals succeeded, the demand of duty was set aside, and the penalties imposed on the assessee and its director were vacated.

Ratio Decidendi: Where the department relies only on disclosed return data, suppression and misdeclaration cannot be invoked to justify the extended period of limitation, and execution of a B-17 bond by itself does not exclude application of Section 11A of the Central Excise Act, 1944.

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