Central Excise Act | Extended Limitation Period Cannot Be Invoked When Facts Are Known To Both Parties: Supreme Court

"When the facts are known to both the parties, omission by one party to do what he might have done would not render its suppression." Supreme Court, in a significant ruling dated August 13, 2026, held that the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944, cannot be invoked by the Revenue when all material facts were already within the knowledge of the Department.

A bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran observed that an omission by an assessee to do something when the department possesses full knowledge of the facts does not amount to wilful suppression of facts.

The appellants were engaged in the body building of motor vehicles as a job worker, receiving chassis from manufacturers on which bodies were built. The dispute arose over whether the 10% additional cost representing the manufacturer's profit margin under Rule 8 of the Central Excise Valuation Rules, 2000, should be included in the assessable value when the job worker computes excise duty. The Revenue issued a show cause notice covering the period from November 1, 2004, to March 31, 2007, invoking the extended limitation period under the proviso to Section 11A.

The primary question before the court was whether the valuation of chassis under Rule 8 must form part of the assessable value of the completed motor vehicle by the job worker. The court was also called upon to determine whether the extended period of limitation under Section 11A could be legally invoked by the Department in the absence of wilful suppression.

Valuation And CENVAT Chain "Assessable Value Includes Intermediate Valuation"

The bench examined the statutory framework governing job work and valuation under the Central Excise Act. It noted that the manufacturer cleared the chassis by paying duty on 110% of its cost of manufacture in terms of Rule 8 of the Valuation Rules. When the job worker cleared the completed motor vehicle, duty was computed on the sum total of the manufacturer's cost, raw materials, job work charges, and job worker's profit. The court held that the 10% additional cost already factored into the chassis valuation cannot be ignored because it forms an integral part of the intermediate product on which duty was paid and credit utilized.

No Legal Flux In View Of Constitution Bench Precedents

Rejecting the assessee's contention that the legal position was in a state of flux until a larger bench of the Central Excise Tribunal decided the issue, the court held that the principle laid down by the Constitution Bench in M/s Ujagar Prints and Others (II) v. Union of India applied squarely. The bench emphasized that the assessable value of the completed vehicle cannot be determined de hors the additional 10% cost which forms part of the statutorily fixed value of the chassis under Rule 8.

"There cannot be a suppression or misstatement of fact, which is not wilful and yet constitute a permissible ground for invocation of proviso to Section 11-A."

Court Clarifies Scope Of Extended Limitation "Wilful Intent Required For Extended Limitation

The court turned to the core question of limitation, emphasizing that invoking the proviso to Section 11A requires proof of fraud, collusion, wilful misstatement, or suppression of facts with intent to evade duty. Relying on settled precedents including Continental Foundation Joint Venture Holding v. CCE and Larsen & Toubro Ltd. v. CCE, the bench reiterated that extension of the limitation period entails serious civil and criminal consequences. The statutory language requires that any misstatement or contravention must be qualified by a wilful intent to evade payment of duty.

Knowledge Of Parties Negates Suppression

The bench underscored a crucial principle that when facts are known to both parties, the failure of one party to act does not constitute suppression. In the instant case, the manufacturer had cleared the chassis at 110% of its cost of manufacture, a fact entirely known to the Department. The court held that if the 10% value was omitted when computing duty at the job worker's stage, the Department was obligated to take immediate action within the normal limitation period under sub-section (1) of Section 11A.

Show Cause Notice Beyond Statutory Period

The court observed that the demand raised for the period between November 1, 2004, and March 31, 2007, through a show cause notice dated April 30, 2008, was well beyond the standard one-year limitation period prescribed under Section 11A(1). Because the ingredients for invoking the extended period were entirely absent, the Revenue's demand suffered from fatal delay.

The Supreme Court allowed the appeals, setting aside the impugned order of the Tribunal along with the orders of the original and appellate authorities. While affirming that the substantive liability of the assessee to include the full cost price on which excise duty was paid by the manufacturer remains unassailable in law, the court ruled that the demands for the subject period were barred by limitation.

Date of Decision: 13 August 2026