Extended limitation, area-based exemption and section 9D compliance govern central excise demand, evidence and penalty sustainability.

Extended limitation under the Central Excise Act was unavailable because the department had prior knowledge of the addition of new products, shifting of premises and transfer of the unit, and no deliberate suppression with intent to evade duty was shown. Area-based exemption under Notification No. 50/2003-C.E. remained available for an eligible unit that introduced new products, relocated within the notified area and was taken over as a going concern. Statements recorded under section 14 could not be used without complying with section 9D, making them inadmissible for adjudication. Penalties under rules 25 and 26 also failed because the substantive demand and the required confiscability findings were not sustained.

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Issues: (i) whether the extended period of limitation under section 11A(4) of the Central Excise Act, 1944 was invocable; (ii) whether the appellant and Om Sai were entitled to area-based exemption under Notification No. 50/2003-C.E. dated 10.06.2003 for new products, shifted premises, and transfer of ownership; (iii) whether statements recorded under section 14 of the Central Excise Act, 1944 could be relied upon without following section 9D; and (iv) whether penalties under rule 25 and rule 26 of the Central Excise Rules, 2002 could be sustained.

Issue (i): whether the extended period of limitation under section 11A(4) of the Central Excise Act, 1944 was invocable.

Analysis: The demand related to a period well beyond the normal limitation period. The department had been informed in 2015 about the addition of new products, shifting of the factory premises, and takeover of the unit, and the record showed departmental awareness of the transfer and exemption claim. In such circumstances, there was no basis to infer deliberate suppression of facts with intent to evade duty. The legal requirement for invoking the extended period is a positive act of fraud, collusion, wilful misstatement, suppression, or contravention with intent to evade, which was not established on the facts found.

Conclusion: The extended period of limitation was not validly invoked and the demand founded on it could not be sustained, in favour of the assessee.

Issue (ii): whether the appellant and Om Sai were entitled to area-based exemption under Notification No. 50/2003-C.E. dated 10.06.2003 for new products, shifted premises, and transfer of ownership.

Analysis: The exemption was intended for eligible industrial units in the notified area. The notification and the departmental circulars recognised exemption for manufacture of new products by an eligible unit, permitted expansion and relocation within the eligible area, and did not bar transfer of ownership. The evidence accepted by the Tribunal showed that Om Sai had lawfully added new products, shifted to another notified premises with intimation and verification, and was later taken over as a going concern. These changes did not destroy the unit's eligibility for exemption.

Conclusion: The exemption was correctly available and the contrary findings were unsustainable, in favour of the assessee.

Issue (iii): whether statements recorded under section 14 of the Central Excise Act, 1944 could be relied upon without following section 9D.

Analysis: Statements recorded during inquiry become relevant in adjudication only if the statutory procedure under section 9D is followed. That requires examination of the maker of the statement before the adjudicating authority and a reasoned decision on admissibility, with cross-examination thereafter. The persons whose statements were relied upon were not examined in that manner, so the statements could not be treated as admissible evidence for proving the allegations.

Conclusion: Reliance on the statements without compliance with section 9D was impermissible, in favour of the assessee.

Issue (iv): whether penalties under rule 25 and rule 26 of the Central Excise Rules, 2002 could be sustained.

Analysis: Rule 25 could not apply once the substantive demand itself was unsustainable. As to rule 26, penalty on a person other than the main noticee requires a finding that the goods were liable to confiscation and that the person was concerned in the prohibited dealing with such goods. The impugned order did not record a proper confiscability finding before imposing the penalties on the individual appellants.

Conclusion: The penalties under rule 25 and rule 26 were not sustainable, in favour of the assessee and the individual appellants.

Final Conclusion: The demand, interest, and penalties were set aside because the extended limitation was wrongly invoked, the exemption claim was legally sustainable, and the evidentiary and penal findings could not stand.

Ratio Decidendi: Where the department has prior knowledge of the material facts, the extended period cannot be invoked absent deliberate suppression with intent to evade duty, and statements relied on in adjudication are inadmissible unless the mandatory procedure under section 9D is followed.

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