Limitation for Modvat reversal demand fails where facts were disclosed, returns finalised, and audits raised no objection.

Modvat credit reversal demand was held time-barred under Rule 57-I because the inputs had been disclosed in the Modvat declaration, the RT-12 returns had been finalised, and departmental audits had raised no objection. Since the relevant facts were already within departmental knowledge and the duty-paid nature and use of the inputs were not disputed, invocation of the extended limitation period was not justified. The demand and related penalties were therefore set aside, and the assessee obtained consequential relief.

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Issues: Whether the demand for reversal of Modvat credit and the penalties were barred by limitation under Rule 57-I of the Central Excise Rules, 1944.

Analysis: The appellants had earlier disclosed the inputs in their Modvat declaration, the relevant RT-12 returns had been finalised, and the records were periodically audited without objection. The demand was also founded on facts already within departmental knowledge, and the department was not disputing the duty-paid nature of the inputs or their use in the final product. In these circumstances, the invocation of the longer period was not justified, and the demand was held to be time-barred under Rule 57-I.

Conclusion: The demand and the penalties could not be sustained and were set aside in favour of the assessee.

Final Conclusion: The appeals succeeded because the adjudged demand was held to be barred by limitation, and the appellants became entitled to consequential relief.

Ratio Decidendi: Where the relevant facts are disclosed, the returns are finalised, and departmental audit does not reveal objection, the extended period for recovery cannot be invoked merely on the basis of a broad declaration of inputs.

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