Extended limitation for duty demand fails where intent to evade is not established and the classification issue remained unsettled

The extended period of limitation could not be invoked because suppression or intent to evade duty was not established. The assessee was already paying duty on carbon paper cleared for home consumption, captive consumption was treated as exempt under Notification No. 118/75, and the legal position remained unsettled until later retrospective amendment of Rules 9 and 49 by Section 51 of the Finance Act, 1982. Classification of carbon paper was also disputed until finally settled. As the requisite mens rea was absent, the demand was restricted to the normal limitation period and the penalty was set aside.

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Issues: Whether the extended period for recovery of duty could be invoked on the ground of suppression or intent to evade, and whether the penalty imposed was sustainable.

Analysis: The duty demand was examined against the background that the assessee was already paying duty on carbon paper cleared for home consumption, and the Department had proceeded on the basis that captive consumption attracted exemption under Notification No. 118/75. The record also showed that the legal position on captive consumption had been unsettled and was later clarified by the retrospective amendment of Rules 9 and 49 by Section 51 of the Finance Act, 1982. In addition, the classification of carbon paper itself had remained in dispute, with the assessee and the Department taking different views until the classification issue was finally settled. On these facts, the necessary element of intent to evade duty was not established.

Conclusion: The extended period of limitation was not available to the Department, the demand was confined to six months preceding the show cause notice, and the penalty was set aside.

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