Duty on lawful clearance to packing unit cannot be re-demanded on ultimate sale price; suppression was not established.

Duty could not be demanded again from a manufacturer where goods were lawfully cleared to a packing unit under permission of the Development Commissioner, on central excise invoices, and duty had already been paid on cost plus conversion basis. The later use of commercial invoices for sale of the packed goods to the ultimate buyer did not justify revaluation at the manufacturer's end or a second levy on the basis of the final sale price. The extended limitation period was also unavailable because the clearances were within departmental knowledge and supported by duty-paid documents, so suppression was not established. The differential duty demand and penalties were therefore unsustainable, with consequential relief following.

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Issues: (i) Whether duty could be demanded from the manufacturer on the basis of the commercial invoices raised for the ultimate buyer when the goods were cleared to the packing unit on a loan licence basis after payment of duty on cost plus conversion basis; (ii) Whether the demand and penalties were barred by limitation for want of suppression.

Issue (i): Whether duty could be demanded from the manufacturer on the basis of the commercial invoices raised for the ultimate buyer when the goods were cleared to the packing unit on a loan licence basis after payment of duty on cost plus conversion basis.

Analysis: The clearances from the manufacturer to the packing unit were made under permission of the Development Commissioner and under central excise invoices. The assessable value adopted on the basis of material cost plus conversion cost was not disputed as incorrect. The fact that the packed goods were later cleared to the ultimate buyer on the basis of commercial invoices did not alter the legality of the earlier clearance or justify a second levy on the manufacturer.

Conclusion: The demand of differential duty on this basis was not sustainable.

Issue (ii): Whether the demand and penalties were barred by limitation for want of suppression.

Analysis: The clearances were made within the knowledge of the department under the relevant permissions, and duty-paid documents were filed. The subsequent commercial invoicing to the ultimate buyer did not amount to suppression for the purpose of invoking the extended period, since the goods were not cleared directly to that buyer from the manufacturer.

Conclusion: The extended period was not invocable and the penalties could not survive.

Final Conclusion: The demand of duty and the penalties were set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Where duty has been correctly discharged on a lawful clearance to a packing unit under an approved arrangement, the subsequent sale of the packed goods to a third party does not justify a fresh duty demand on the manufacturer on the basis of the ultimate sale price, and the extended period cannot be invoked absent suppression.

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