Extended limitation for Modvat reversal fails where duty-free clearances were disclosed and suppression was not established.

Extended limitation under the proviso to Rule 57(7) could not be invoked to demand reversal of Modvat credit where the assessee had disclosed its decision to clear final products without duty and the relevant monthly returns and RG-23A extracts were before the department. On those records, the department could determine the duty-free clearances and compute the relatable input credit by simple calculation. Mere non-reversal of credit, without further evidence of suppression or misstatement, was insufficient to justify the extended period. The demand was therefore held unsustainable in favour of the assessee.

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Issues: Whether the extended period under the proviso to Rule 57(7) could be invoked to demand reversal of Modvat credit when the assessee had cleared final products without payment of duty after opting for exemption.

Analysis: The assessee had informed the department that it intended to clear finished goods without payment of duty from 1 April 1991, and the monthly returns and RG-23A extracts were available to the department. On the material filed, the department could ascertain that the goods were being cleared without duty and could quantify the credit relatable to the inputs by a simple calculation. Mere non-reversal of credit, without more, did not establish suppression or misstatement so as to justify resort to the extended limitation period.

Conclusion: The extended period was not invocable and the demand was unsustainable, in favour of the assessee.

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