Extended limitation in excise demand fails absent proved suppression; penalty based on time-barred duty also falls.

Extended limitation under the Central Excise Act could not be invoked where departmental officers had already visited the factory and knew the material facts, yet the show-cause notice was issued much later without evidence of continuing investigation or proved suppression. As the demand of differential duty was therefore time-barred, it could not be sustained, and the penalty based on that disputed demand also failed. The document further notes that repacking became excisable only after insertion of Note 5 in Chapter 38 of the First Schedule to the Central Excise Tariff Act, but that change did not justify invoking suppression on the facts recorded.

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Issues: (i) Whether the demand of differential duty could be sustained by invoking the extended period of limitation on the ground of suppression of facts. (ii) Whether the penalty imposed on the assessee under the excise penalty provision could survive once the duty demand was held time-barred.

Issue (i): Whether the demand of differential duty could be sustained by invoking the extended period of limitation on the ground of suppression of facts.

Analysis: The activity of repacking became excisable only after the insertion of Note 5 in Chapter 38 of the First Schedule to the Central Excise Tariff Act, 1985. The record showed that the departmental officers visited the factory in July 1998 and were then aware of the material facts, yet the notice was issued only on 26 February 2002. The demand rested entirely on the facts already gathered during the earlier visit, and there was no material showing continuing investigation during the intervening period. In these circumstances, the element of suppression necessary to attract the extended period under the proviso to Section 11A(1) of the Central Excise Act, 1944 was not established.

Conclusion: The differential duty demand was time-barred and could not be sustained against the assessee.

Issue (ii): Whether the penalty imposed on the assessee under the excise penalty provision could survive once the duty demand was held time-barred.

Analysis: The admitted duty liability had already been discharged before issuance of the show-cause notice, and the contested demand itself was found barred by limitation. In such a situation, the penalty founded on the disputed demand could not survive.

Conclusion: The penalty imposed on the assessee was not sustainable and was set aside.

Final Conclusion: The impugned order was interfered with to the extent challenged, and the assessee obtained complete relief against the disputed demand and penalty.

Ratio Decidendi: Where the department issues a show-cause notice long after it has already obtained all material facts, the extended period of limitation cannot be invoked in the absence of proved suppression, and any penalty dependent on the time-barred demand must also fail.

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