Excise duty on dry-weight iron ore pellets cannot include transport-related moisture; limitation and penalty fail without suppression.

Duty on iron ore pellets cannot be computed on moisture added after manufacture where the pellets were recorded in RG-1 on a dry-weight basis and the wetting was only for transport and pollution-control compliance. The moisture did not alter the character of the marketable excisable goods, and the wet-weight method was rejected on the facts. A demand based on such moisture content is unsustainable. Where the relevant facts were fully disclosed in records and documents, suppression or clandestine removal is not established, so the extended limitation period cannot be invoked. In the absence of a valid duty demand, penalty and interest also fail.

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Issues: (i) whether duty could be demanded on the moisture-added weight of iron ore pellets when the goods were recorded in RG-1 on dry weight basis and the moistening was only for transportation and pollution-control requirements; (ii) whether the demand was barred by limitation and whether penalty and interest could be sustained.

Issue (i): whether duty could be demanded on the moisture-added weight of iron ore pellets when the goods were recorded in RG-1 on dry weight basis and the moistening was only for transportation and pollution-control requirements.

Analysis: The recorded manufacture and accounting of the pellets were on dry weight basis, and the Revenue did not dislodge that factual position. The moisture was introduced after emergence of the pellets, and the evidence showed that sprinkling of water was done to comply with pollution-control requirements and for transport, not as part of manufacture. The purchase orders and trade documents also indicated dry-basis pricing and recognition of free moisture content. The reliance on Chapter 26 and on the wet-weight method was rejected because the goods had already reached the marketable stage when accounted, and the moisture content did not alter the character of the excisable product for the purpose of levy.

Conclusion: Duty was not payable on the moisture content and the demand on that basis was unsustainable, in favour of the assessee.

Issue (ii): whether the demand was barred by limitation and whether penalty and interest could be sustained.

Analysis: The demand was founded on facts that were fully reflected in the documents and there was no persuasive basis for alleging suppression or clandestine removal to justify the extended period. The absence of a sustainable duty demand also removed the foundation for mandatory penalty and interest.

Conclusion: The extended period could not be invoked and the penalties and interest were unsustainable, in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal succeeded, with the entire duty demand and consequential penal liabilities falling.

Ratio Decidendi: Where excisable goods are lawfully manufactured and accounted for at the dry stage, and subsequent wetting is only a transportation or compliance measure after the goods have become marketable, duty cannot be demanded on the added moisture weight, nor can limitation and penalty survive without proof of suppression.

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