Dry-weight valuation of iron ore pellets defeated duty demand, with no proof of clandestine removal or suppression.

Moisture added to iron ore pellets for transportation did not justify duty on wet weight where production records were kept on dry weight and the evidence supported dry-basis valuation. The material on record, including trade practice and documentary particulars of wet and dry weights, did not establish clandestine removal, suppression, or extra consideration. On that basis, the demand of differential duty failed. Because the duty demand itself was not sustainable, the related invocation of the extended period of limitation, penalty, and interest also failed and was set aside. The assessee obtained complete relief.

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Issues: (i) Whether differential duty could be demanded on the basis that the iron ore pellets were cleared with moisture content and that the wet weight represented clandestine removal. (ii) Whether the extended period of limitation, penalty and interest could be sustained.

Issue (i): Whether differential duty could be demanded on the basis that the iron ore pellets were cleared with moisture content and that the wet weight represented clandestine removal.

Analysis: The duty demand was founded on the premise that the assessee had suppressed clearances by not deducting moisture and had paid duty only on dry weight. The recorded production in RG-1 was maintained on dry weight and was not questioned, while the wetting of pellets was shown to be only for transportation and environmental compliance. The purchase orders, trade practice, standard publications and the material on record supported the existence of free moisture and the acceptance of dry-basis valuation. The tariff entry for iron ore pellets did not justify treating moisture as exigible removal in the manner alleged, and the evidence did not establish clandestine removal of additional goods.

Conclusion: The demand of duty on moisture content was not sustainable and was set aside, in favour of the assessee.

Issue (ii): Whether the extended period of limitation, penalty and interest could be sustained.

Analysis: The material disclosed payment of duty on the basis of the amounts received and on the dry weight of the goods, with documentary evidence of wet and dry weight particulars and no showing of extra consideration. In these circumstances, the ingredients necessary for invoking the extended period were not established. Once the duty demand itself failed, the connected levy of mandatory penalty and interest also could not survive.

Conclusion: The extended period, penalty and interest were not sustainable and were set aside, in favour of the assessee.

Final Conclusion: The impugned order was annulled in full and the assessee obtained complete relief.

Ratio Decidendi: Where moisture added only for transportation does not alter the marketable stage of the excisable product and the evidence does not establish clandestine removal or suppression, duty cannot be demanded on the moist weight, nor can limitation, penalty or interest be invoked on that basis.

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