Selective exemption option and timely duty demand under challenge classification list both failed against the manufacturer.

Selective exercise of an exemption option under Notification No. 1/93-C.E. was not permissible where the manufacturer continued concessional clearances for other goods arising from the same integrated manufacturing process; once the option was exercised, normal duty had to apply to all subsequent clearances in that financial year. The demand was also held within limitation because the classification list was under challenge and had not been finally accepted as conclusive, so timely notices were not defeated by a plea of prospectivity.

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Issues: (i) Whether a manufacturer could exercise the option under Notification No. 1/93-C.E. in respect of one product and still avail concessional duty on other clearances in the same financial year; (ii) Whether the demand was barred by time or rendered prospective because the classification list had been filed and accepted.

Issue (i): Whether a manufacturer could exercise the option under Notification No. 1/93-C.E. in respect of one product and still avail concessional duty on other clearances in the same financial year.

Analysis: The option in the notification permits a manufacturer to forgo the exemption and pay duty at the normal rate, but once that option is exercised, duty at the normal rate must be paid on all subsequent clearances in that financial year. The goods in question arose from an integrated manufacturing process, and the waste and scrap were not treated as a separate and independent regime for the purpose of selective exemption.

Conclusion: The option could not be exercised selectively for one item while continuing concessional clearances for the others; the finding was against the assessee.

Issue (ii): Whether the demand was barred by time or rendered prospective because the classification list had been filed and accepted.

Analysis: The classification list was under challenge and was not finally accepted as conclusive by the department. The notices were issued within the statutory period, and the demand was therefore not time-barred. The approval of the classification list did not give the assessee a right to resist the demand on a purely prospective basis in the facts of the case.

Conclusion: The demand was within limitation and the plea of prospectivity failed; the finding was against the assessee.

Final Conclusion: The appeals failed because the exemption notification did not permit selective exercise of the option and the duty demand was held to be within time.

Ratio Decidendi: Where an exemption notification requires, upon exercise of the option, duty to be paid on all subsequent clearances in the financial year, the option cannot be used selectively for different products arising from the same manufacturing process, and a challenged classification list does not by itself defeat a timely demand.

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