Exemption notification and limitation principles led to partial relief, with only a short-period duty demand remanded for recomputation.

A later exemption notification covering cotton yarn sent for conversion into plain straight reel hanks was treated as applicable, and the demands for March 1986 to June 1988 were set aside. A prevailing practice of clearing the goods without payment of duty was accepted as a basis for limitation, so the demands for May 1985 to December 1985 and the demand covered by the ninth show cause notice were held time-barred. The demand for January and February 1986 was treated as within time and upheld, but the duty required fresh computation and the matter was remanded for recomputation. The penalty was also set aside.

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Issues: (i) whether the demands for the period March 1986 to June 1988 were liable to be set aside in view of the later exemption notification covering the same goods; (ii) whether the demands for May 1985 to December 1985 and for the demand covered by the ninth show cause notice were barred by limitation on account of the prevailing practice of clearing the goods without payment of duty; and (iii) whether the demand for January and February 1986 could be sustained and required recomputation.

Issue (i): whether the demands for the period March 1986 to June 1988 were liable to be set aside in view of the later exemption notification covering the same goods.

Analysis: The goods concerned were cotton yarn in cops, cone and other forms sent out of the factory for conversion into plain straight reel hanks. A later notification covered the same goods, and the Tribunal treated that notification as applicable to the disputed demands for the relevant period.

Conclusion: The demands covered by the show cause notices for March 1986 to June 1988 were set aside.

Issue (ii): whether the demands for May 1985 to December 1985 and for the demand covered by the ninth show cause notice were barred by limitation on account of the prevailing practice of clearing the goods without payment of duty.

Analysis: The record showed a practice prevalent during the relevant period of clearing the goods without payment of duty. On that basis, the earlier period of demand was treated as time-barred, and the same reasoning was extended to the ninth show cause notice.

Conclusion: The demands for May 1985 to December 1985 and the demand under the ninth show cause notice were held to be barred by limitation.

Issue (iii): whether the demand for January and February 1986 could be sustained and required recomputation.

Analysis: The Tribunal found that the demands for January and February 1986 were within time and were not challenged on merits. However, the exact duty payable required fresh calculation.

Conclusion: The demand for January and February 1986 was upheld and the matter was remanded for recomputation of duty.

Final Conclusion: The appeal succeeded substantially in respect of the major demands and the penalty was set aside, but the limited demand for January and February 1986 survived for recomputation before the original authority.

Ratio Decidendi: A demand can be excluded where a later exemption notification covers the same goods, and limitation may be attracted where the assessee establishes a prevailing practice of clearance without payment of duty.

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