Extended limitation cannot be invoked when Modvat credit adjustments follow department-approved procedure and facts are fully disclosed.

Where an assessee removed defective inputs and reversed Modvat credit before taking the same credit on receipt of rectified goods under a procedure directed by the Assistant Collector, the transactions were within departmental knowledge and there was no basis to allege suppression or concealment. The demand was therefore held time-barred and the extended period of limitation was not invocable. The principle applied is that departmental approval or prescribed procedure, coupled with full disclosure of the relevant facts, defeats invocation of the extended limitation period.

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Issues: Whether the demand was barred by limitation and the extended period could be invoked when the assessee removed defective inputs and received the rectified goods back under the procedure directed by the Assistant Collector.

Analysis: The assessee had reversed Modvat credit when defective inputs were sent out and took the same credit when the rectified goods were received back, in accordance with the procedure specifically directed by the Assistant Collector after departmental consultation. The entire activity was therefore within the knowledge of the Department, and the factual basis required to sustain suppression or other grounds for invoking the extended period was absent.

Conclusion: The demand was time-barred and the extended period was not invocable. The issue is decided in favour of the assessee.

Ratio Decidendi: Where the assessee acts in accordance with a procedure prescribed or approved by the Department and the relevant transactions are within departmental knowledge, the extended period of limitation cannot be invoked absent suppression or concealment.

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