Limitation, manufacture and job-worker liability: decatising and calendaring were held outside excise duty under the revised scheme.

The extended limitation period could not be invoked because the department was already aware of the processing activity and no suppression of facts with intent to evade duty was proved. Decatising was treated as a finishing operation that did not bring into existence a new commodity, so it did not amount to manufacture and no central excise duty was leviable; the later exemption notifications were treated as clarificatory and retrospective. Calendaring was also held not liable to duty, and from 01.03.2003 the revised scheme shifted the duty burden away from job workers, so no duty could be confirmed on them under Rule 12B and the press note.

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Issues: (i) Whether the demands were barred by limitation on account of absence of suppression of facts with intent to evade duty. (ii) Whether decatising amounted to manufacture and whether the process was exempt or otherwise not liable to central excise duty, including the effect of the later notifications. (iii) Whether calendaring was liable to duty and whether, from 01.03.2003, duty could be demanded from job workers in view of Rule 12B and the press note.

Issue (i): Whether the demands were barred by limitation on account of absence of suppression of facts with intent to evade duty.

Analysis: The record showed that the department was aware of the processing activity through representations by the trade associations and correspondence with the authorities. On those facts, the essential ingredients for invoking the extended period were not made out. The proviso to the limitation provision could be applied only where statutory information was withheld with intent to evade duty, which was not established here.

Conclusion: The demands were barred by limitation and the extended period was not available to the Revenue.

Issue (ii): Whether decatising amounted to manufacture and whether the process was exempt or otherwise not liable to central excise duty, including the effect of the later notifications.

Analysis: The technical material relied upon treated decatising, decating and blowing as the same process. The process was described as a finishing operation that removed wrinkles and creases and did not bring into existence new goods. In the absence of emergence of a new commodity, the process did not satisfy the test of manufacture. The subsequent notifications restoring exemption were treated as clarificatory and, therefore, as operating retrospectively from the relevant date.

Conclusion: Decatising was not a process of manufacture and no duty was leviable on that process.

Issue (iii): Whether calendaring was liable to duty and whether, from 01.03.2003, duty could be demanded from job workers in view of Rule 12B and the press note.

Analysis: Calendaring was held not to be liable in the connected line of cases relied upon and followed for these appeals. For the period after 01.03.2003, the new regime placed the duty burden on the weavers, traders and owners of fabrics rather than on job workers, as clarified by the rule and the press note.

Conclusion: No duty could be confirmed on calendaring, and the job workers were not liable for duty from 01.03.2003 under the revised scheme.

Final Conclusion: The appeals succeeded in full, the duty demands and penalties were unsustainable, and consequential relief followed.

Ratio Decidendi: Where the department is aware of the activity and no suppression with intent to evade duty is proved, the extended limitation period cannot be invoked; a finishing process that does not bring into existence new goods is not manufacture; and a clarificatory exemption notification operates retrospectively to restore the exempt status.

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