Power used only for storage, not manufacture, did not defeat exemption for thinners; demand was also time-barred.

Exemption under Notification No. 230/86-C.E. was available where power was used only to empty tankers, transfer solvents to storage tanks, and handle common raw materials, while the actual manufacture of thinners proceeded without power. The use of power for storage and internal movement of materials not exclusively earmarked for the exempt product did not amount to manufacture with the aid of power, so denial of exemption was unsustainable. The demand was also time-barred because the clearances were made under approved classification lists, supported by departmental verification and correspondence, and the record did not justify extended limitation for suppression. The duty demand and penalty were set aside.

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Issues: (i) Whether the appellants were entitled to exemption under Notification No. 230/86-C.E. when power was used only for storage and handling of solvents, and not in the actual manufacture of thinners; (ii) Whether the demand was barred by limitation in view of approved classification lists and departmental knowledge.

Issue (i): Whether the appellants were entitled to exemption under Notification No. 230/86-C.E. when power was used only for storage and handling of solvents, and not in the actual manufacture of thinners.

Analysis: The relevant exemption turned on whether thinners were made without the aid of power. The factual finding accepted that power was used only to empty tanker lorries into storage tanks and to transfer solvents to overhead tanks for general storage. From there, the solvents were filled into barrels by gravity and moved manually to the mixing stage; in the cellulose section, no power was used even for storage. The manufacture of thinners was held to begin only when solvents were taken from the overhead tanks for mixing, and the use of power for storage of common raw materials, also used in other products, was held not to be part of the manufacture of thinners.

Conclusion: The appellants were entitled to the exemption, and the denial of benefit was unsustainable.

Issue (ii): Whether the demand was barred by limitation in view of approved classification lists and departmental knowledge.

Analysis: The clearances had been made on approved classification lists, with departmental verification and correspondence indicating acceptance of the exemption claim. The show cause notice was issued well beyond the normal six-month period for the disputed period, and the facts did not justify invoking the longer limitation period. The prior departmental approvals and the appellants' consistent disclosures negatived the allegation of suppression sufficient to sustain the demand.

Conclusion: The demand was barred by limitation.

Final Conclusion: The duty demand and penalty were set aside, and the appeal succeeded with consequential relief.

Ratio Decidendi: Use of power only for storage or internal handling of common raw materials, where the actual manufacturing process proceeds without power and the raw materials are not exclusively earmarked for the exempt product, does not amount to manufacture with the aid of power for the purpose of denying an exemption conditioned on manufacture without power.

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