Depot sale valuation and extended limitation failed where ex-factory prices governed duty and suppression was not shown.

For the pre-28 September 1996 period, depot sale prices could not be used to demand excise duty where valuation under Section 4 remained governed by ex-factory prices. In the absence of suppression or incorrect disclosure, the extended limitation period under Section 11A could not be invoked, and the differential duty demand was unsustainable. Because the duty demand failed, penalty could not survive; moreover, Sections 11AB and 11AC applied only from 28 September 1996 and could not be applied retrospectively. Penalty under Rule 173Q was also not sustainable once extended limitation failed, so the demand, interest, and penal liabilities were set aside.

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Issues: (i) Whether differential duty could be demanded on depot sale prices for the relevant period and whether the show cause notice was barred by limitation. (ii) Whether penalty and interest under the excise provisions could be imposed for the relevant period.

Issue (i): Whether differential duty could be demanded on depot sale prices for the relevant period and whether the show cause notice was barred by limitation.

Analysis: Depot prices became relevant for duty payment only from 28 September 1996. For the period in dispute, ex-factory prices governed valuation under Section 4, even for clearances later sold from depots. The appellants were not required to disclose depot sale prices after duty had been paid on the clearances, so there was no basis to allege incorrect declaration or suppression of facts. In the absence of suppression, the extended period could not be invoked.

Conclusion: The differential duty demand was not sustainable and the show cause notice was barred by limitation.

Issue (ii): Whether penalty and interest under the excise provisions could be imposed for the relevant period.

Analysis: Once the duty demand itself was unsustainable, no penalty could survive. Section 11AB and Section 11AC came into force only from 28 September 1996 and could not be applied retrospectively to the disputed period. Penalty under Rule 173Q also could not be sustained where invocation of the extended period under Section 11A failed.

Conclusion: Penalty and interest were not imposable and were set aside.

Final Conclusion: The entire demand and consequential penal liabilities were set aside, and the appeal succeeded.

Ratio Decidendi: For the pre-28 September 1996 period, depot sale prices could not be used to demand duty, and in the absence of suppression the extended limitation period, penalty, and interest under later-introduced provisions could not be invoked.

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