Limitation for excise recovery and penalty fails where no mala fides or deliberate evasion is shown.

A differential excise duty demand relating to steel drums was held time-barred because the wrong value had been adopted in assessment and the case fell within Rule 10 of the Central Excise Rules, 1944, with its one-year limitation; the residuary Rule 10A could not be used to extend recovery where the specific provision applied. Penalty under Rule 173Q was also rejected because there was no convincing material of mala fides, suppression, or deliberate duty evasion. The demand and penalty were both set aside, and consequential relief followed.

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Issues: (i) whether the demand of differential excise duty was barred by limitation under the applicable recovery rules, and (ii) whether penalty under Rule 173Q was justified.

Issue (i): whether the demand of differential excise duty was barred by limitation under the applicable recovery rules.

Analysis: The duty demand arose from valuation of steel drums fabricated from customer-supplied steel. The value initially adopted for assessment was based on indigenous steel, while imported steel of a higher cost had actually been used. The Court held that this amounted to a misstatement of value, which fell within Rule 10 of the Central Excise Rules, 1944, read with the then applicable recovery scheme and the one-year limitation attached to such demands. Rule 10A was treated as a residuary provision and was found inapplicable because the case was specifically covered by Rule 10. As the show cause notice was issued after the expiry of one year, the demand could not be sustained.

Conclusion: The duty demand was time-barred and was set aside.

Issue (ii): whether penalty under Rule 173Q was justified.

Analysis: The Court found no convincing material to establish mala fides, suppression, or any deliberate attempt by the appellants to evade duty. The appellants were merely fabricators entitled only to a fabrication charge, while the steel belonged to the customer and the duty burden was contractually on the customer. On the evidence, the circumstances did not justify imposition of penalty, much less the heavy penalty imposed.

Conclusion: The penalty under Rule 173Q was not justified and was set aside.

Final Conclusion: The appeal succeeded in full, with the demand of duty and the penalty both annulled, entitling the appellants to consequential relief.

Ratio Decidendi: Where the facts disclose a specific misstatement covered by the ordinary recovery provision, the residuary recovery rule cannot be invoked to avoid the prescribed limitation, and penalty cannot be sustained absent material showing mala fides or deliberate evasion.

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