1990 (5) TMI 111 - AT - Central Excise

Issues Involved: Classification of products, exemption from duty, suppression of facts, limitation period for demand of duty.

Detailed Analysis:

1. Classification of Products:
The appellants manufactured petroleum products termed as "speciality oils" and claimed these were classifiable under Item 68-CET, thus exempt from duty. The department, however, classified these products under Tariff Items 8 and 10 of the Central Excise Tariff based on the Dy. Chief Chemist's report, which indicated that the products met the specifications of these items. The appellants argued that their products, produced by fractional distillation of duty-paid light diesel oil, did not fit these classifications and should be considered under Item 68-CET. They supported their claim with expert opinions and references to an Expert Committee report from the Ministry of Energy.

2. Exemption from Duty:
The appellants contended that their unit was not a factory under the Factories Act, 1948, and thus their products were exempt from duty under Notification 46/81. They had informed the Central Excise department of their intention to manufacture these products and claimed exemption based on a letter from the Central Board of Excise & Customs dated 23-8-1978, which listed oils that would come under the category of "speciality oil."

3. Suppression of Facts:
The department issued a Show Cause Notice on 21-6-1985 alleging that the appellants had suppressed detailed specifications of their products with intent to evade duty. The appellants argued that they had provided all necessary information in their letter dated 5-1-1981 and that the department had already drawn samples and had knowledge of the products by 1981. They cited several legal precedents to argue that there was no deliberate withholding of information or positive action on their part to suppress facts.

4. Limitation Period for Demand of Duty:
The appellants argued that the demand was hit by limitation. The first Show Cause Notice issued on 19-4-1982 did not allege suppression and demanded duty for a period within six months. However, the second Show Cause Notice issued on 21-6-1985, which alleged suppression, sought to recover duty for the period 9-1-1981 to 17-10-1981, well beyond the six-month period. The appellants relied on several judicial decisions to argue that the department had to substantiate the allegation of suppression with intent to evade duty, which it failed to do.

Judgment:
The Tribunal found that the appellants had indeed informed the department about their products and their claim for exemption. The department had drawn samples and tested them, indicating knowledge of the products by 1981. The first Show Cause Notice did not allege suppression, and the second notice, issued in 1985, was beyond the permissible period for demanding duty. The Tribunal concluded that there was no deliberate suppression of facts by the appellants and that the department had sufficient knowledge of the products. Consequently, the demand for duty was hit by limitation, and the Collector's order was set aside on these grounds. The Tribunal did not delve into the merits of the case, as the decision on limitation was sufficient to dispose of the appeal.

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