Excisability on job work and suppression of production sustained duty demand and extended limitation, with penalty reduced

Processing that brings a new excisable product into existence can attract duty even where the work is done on a job-work basis; the non-marketability objection to an intermediate product was rejected, and the duty demand was upheld. Suppression was found from the failure to obtain registration and declare production to excise authorities, so the extended five-year limitation period applied. The penalty was considered excessive on the facts and was reduced.

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Issues: (i) whether LDPE-coated fabrics manufactured on job work basis were excisable and whether the demand of duty was sustainable; (ii) whether the extended period of limitation was applicable; (iii) whether the penalty required reduction.

Issue (i): whether LDPE-coated fabrics manufactured on job work basis were excisable and whether the demand of duty was sustainable.

Analysis: The coated fabrics resulted in a new product classifiable under a different tariff heading and were returned to the trader for ultimate sale to garment manufacturers. On these facts, the product had excisability and the contention based on non-marketability of an intermediate product was held inapplicable. The plea of ignorance of law was also not accepted.

Conclusion: The duty demand was upheld and the assessee's challenge failed.

Issue (ii): whether the extended period of limitation was applicable.

Analysis: The assessee had not obtained registration and had not declared production of the goods to the excise authorities. Since no duty had been paid from the beginning and the non-disclosure was material, the longer limitation period was held applicable.

Conclusion: The extended period of five years was held applicable.

Issue (iii): whether the penalty required reduction.

Analysis: Considering the facts and circumstances, the penalty was found excessive and was reduced.

Conclusion: The penalty was reduced from Rs. 4,92,922 to Rs. 2 lakh.

Final Conclusion: The appeal failed on the duty and limitation issues, but succeeded to the limited extent of reduction of penalty.

Ratio Decidendi: Where processing brings into existence a new excisable product and the assessee fails to disclose manufacture or obtain registration, the duty demand and extended limitation are sustainable, though penalty may be moderated on the facts.

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