Manufactured goods and extended limitation rules barred a demand against clearances made to a 100% EOU.

Identical clearances to a 100% EOU could not be treated as mere removals as such where the same goods had been accepted as manufactured goods in comparable clearances and the department had collected duty on those transactions. On that basis, the benefit of Notification No. 22/2003-CE could not be denied. The Tribunal also held that extended limitation was unavailable because the assessee had filed regular returns, cleared goods under CT-3 cover, and disclosed the relevant facts in correspondence; there was no suppression or wilful misstatement with intent to evade duty. The plea for damages or costs was rejected, and the demand, interest, and penalties were sustained only insofar as they had already been set aside below.

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Issues: (i) Whether the goods cleared to the 100% EOU were manufactured goods or goods removed as such, so as to deny the benefit of Notification No. 22/2003-CE dated 31.03.2003. (ii) Whether the demand could be sustained by invoking the extended period of limitation. (iii) Whether damages or costs were warranted on the ground of frivolous litigation.

Issue (i): Whether the goods cleared to the 100% EOU were manufactured goods or goods removed as such, so as to deny the benefit of Notification No. 22/2003-CE dated 31.03.2003.

Analysis: The goods cleared to independent buyers and to DTA units had been accepted by the department as manufactured goods, and duty had been collected on those clearances. The same goods, when cleared to the EOU under CT-3 cover, were sought to be treated differently without a consistent factual basis. The record also showed that the respondent had been regularly explaining the manufacturing process and that the department itself had later accepted manufacture for a subsequent period after factory verification. On this material, the view that the subject clearances were merely removals as such was not sustainable.

Conclusion: The issue is decided in favour of the respondent, and the benefit of Notification No. 22/2003-CE could not be denied on the ground that the goods were not manufactured.

Issue (ii): Whether the demand could be sustained by invoking the extended period of limitation.

Analysis: The respondent had been filing regular ER-1 returns, the clearances were made under CT-3 certificates, and there were communications on the issue with the department. On these facts, there was no reliable basis to establish suppression of facts or wilful misstatement with intent to evade duty. In the absence of such ingredients, the extended period could not be invoked.

Conclusion: The issue is decided in favour of the respondent, and the demand was barred by limitation.

Issue (iii): Whether damages or costs were warranted on the ground of frivolous litigation.

Analysis: The dispute arose from a show cause notice and did not disclose vexatious conduct of the department on the material before the Tribunal.

Conclusion: The plea for damages or costs was rejected.

Final Conclusion: The department's appeal failed on both merits and limitation, and the order setting aside the demand, interest, and penalties was sustained.

Ratio Decidendi: When the department has consistently treated identical clearances as manufactured goods in comparable circumstances, and the assessee's returns and correspondence disclose the relevant facts, a contrary demand based on removal as such and extended limitation cannot be sustained without evidence of suppression or wilful misstatement.

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