Exemption and limitation in molasses duty dispute: disclosure defeated extended period despite merits finding against assessee.

Exemption under Notification No. 67/95 was held inapplicable to indigenously manufactured molasses used to produce rectified spirit because the condition that the final product be dutiable was not satisfied, even though part of the spirit was later denatured and cleared on duty. However, the demand failed on limitation because the classification list, RT-12 returns, covering letter and related records showed disclosure of the manufacturing activity and the exemption claim, with no suppression, misstatement, collusion or intent to evade duty. The extended period was therefore unsustainable, and consequential relief followed.

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Issues: (i) Whether duty was payable on indigenously manufactured molasses used in the manufacture of rectified spirit and denatured alcohol. (ii) Whether the demand was barred by limitation.

Issue (i): Whether duty was payable on indigenously manufactured molasses used in the manufacture of rectified spirit and denatured alcohol.

Analysis: The molasses manufactured in the sugar factory were consumed for manufacture of rectified spirit, which was treated as a non-excisable product. The exemption under Notification No. 67/95 as amended was held inapplicable because the condition requiring the final product to be dutiable was not satisfied, even though part of the rectified spirit was later denatured and cleared on payment of duty.

Conclusion: This issue was decided against the assessee on merits.

Issue (ii): Whether the demand was barred by limitation.

Analysis: The classification list, RT-12 returns, covering letter, and other records showed that the department had been informed of the manufacture and use of molasses and of the claim to exemption. In the absence of suppression, misstatement, collusion, or intention to evade duty, invocation of the extended period was unsustainable.

Conclusion: This issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded because the demand could not survive the limitation challenge, and the impugned order was set aside with consequential relief.

Ratio Decidendi: The extended period of limitation cannot be invoked where the assessee has disclosed the relevant manufacturing activity and clearances to the department and there is no suppression, misstatement, collusion, or intent to evade duty.

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