Excise exemption on date of clearance governs eligibility; departmental knowledge can also defeat an extended limitation demand.

Excise exemption under Notification No. 19/97 is assessed with reference to the legal and factual position on the date of clearance, so goods cleared after restructuring and cessation of texturising activity may still qualify if the exemption then applies. The note also states that a demand cannot be sustained where the department was already aware of the relevant facts and no basis exists for invoking the extended limitation period. On the stated facts, the exemption was available, the demand on merits failed, and the demand was also treated as time-barred, with consequential penalty unsustainable.

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Issues: (i) whether the goods cleared during 17-4-1997 to 8-5-1997 were eligible for the benefit of Notification No. 19/97 dated 11-4-1997 in the facts of the unit's restructuring and cessation of the texturising activity; (ii) whether the demand was barred by time.

Issue (i): whether the goods cleared during 17-4-1997 to 8-5-1997 were eligible for the benefit of Notification No. 19/97 dated 11-4-1997 in the facts of the unit's restructuring and cessation of the texturising activity.

Analysis: The goods were found to have been cleared on the relevant date when the composite arrangement had ceased and the texturising machine had been removed. The notification was construed on the basis of the position obtaining at the time of clearance, not on an earlier factual stage when the unit had different facilities. Since excise duty is attracted on manufacture but collected with reference to the rate and exemption position prevailing on the date of clearance, the benefit of the notification could not be denied merely because the goods had been produced earlier.

Conclusion: The exemption was available and the demand on merits failed, in favour of the assessee.

Issue (ii): whether the demand was barred by time.

Analysis: The dispute was held to have been within the department's knowledge, and no basis was found to sustain the extended demand period on the facts recorded.

Conclusion: The demand was also time-barred, in favour of the assessee.

Final Conclusion: The demand and consequential penalty were not sustainable and the appeals were allowed.

Ratio Decidendi: For excise clearance, eligibility to exemption is determined with reference to the legal and factual position prevailing on the date of clearance, and a demand cannot be sustained when the matter is within departmental knowledge and no basis for limitation is made out.

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