Extended-period excise demand and penalty fail where suppression, marketability and related-person status are not proved.

Extended-period excise demand fails where the department cannot show suppression and the records indicate the procedure was known through numbered documents and inspection visits. The note also states that copper fins, water channels and header plates were not shown to be independently marketable goods, the entities were not proved to be related persons, and the arrangement was treated as job work or a marketing arrangement rather than a single manufacturing set-up. On those facts, exemption under Notification No. 118/75 was available and alleged non-observance of Rule 56B did not itself create duty liability absent clandestine removal. With the duty demand unsustainable on limitation and merits, penalty and confiscation-related consequences also fail.

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Issues: (i) whether the demand of central excise duty was barred by limitation under the extended period; (ii) whether the goods manufactured and moved between the two units were liable to duty, including the questions of marketability, exemption and treatment of the units as related persons or as one manufacturing set-up; and (iii) whether the penalty could survive when the duty demand itself was not sustainable.

Issue (i): whether the demand of central excise duty was barred by limitation under the extended period.

Analysis: The records showed that the movement of materials and finished goods had taken place under numbered documents and after the departmental officers had visited the premises and advised the procedure to be followed. The contemporaneous correspondence and the Superintendent's inspection indicated that the procedure had been known to the department and that there was no suppression justifying invocation of the extended period.

Conclusion: The demand raised under the extended period was barred by limitation and could not be sustained.

Issue (ii): whether the goods manufactured and moved between the two units were liable to duty, including the questions of marketability, exemption and treatment of the units as related persons or as one manufacturing set-up.

Analysis: The goods in question, namely copper fins, water channels and header plates, were not shown to be independent marketable commodities or to have been marketed as such. The relationship between the entities was not established as one of related persons under section 4 of the Central Excise Act, 1944, and the arrangement between them was treated as a job-work / marketing arrangement rather than proof that the appellant was the manufacturer of the goods produced at the other premises. The claim of exemption under Notification No. 118/75 was also found to be available on the facts, and the alleged non-observance of Rule 56B did not create duty liability in the absence of clandestine removal.

Conclusion: The duty demand on merits was not sustainable.

Issue (iii): whether the penalty could survive when the duty demand itself was not sustainable.

Analysis: Once the demand of duty failed both on merits and on limitation, there was no independent basis to sustain the penalty or confiscation-related consequences.

Conclusion: The penalty could not be upheld.

Final Conclusion: The duty demand, confiscation and penalty were set aside, and the appeal succeeded in full.

Ratio Decidendi: Where the department fails to establish suppression for invoking the extended limitation period and also fails to prove marketability or duty liability on merits, consequential penalty cannot be sustained.

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