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Issues: (i) Whether molasses used in the intermediate stage for manufacture of ethyl alcohol, part of which was cleared on payment of duty and part used for potable purposes, was entitled to the benefit of Notification No. 67/95; (ii) whether the demand was barred by limitation; and (iii) whether the penalty imposed on the Managing Director was sustainable.
Issue (i): Whether molasses used in the intermediate stage for manufacture of ethyl alcohol, part of which was cleared on payment of duty and part used for potable purposes, was entitled to the benefit of Notification No. 67/95.
Analysis: The exemption was held inapplicable because the end product, to the extent cleared without payment of duty, was non-excisable at the point of removal, and the use of molasses in producing such quantity of alcohol could not qualify for the benefit of the notification. The reversal of a percentage of the price of the exempted final product did not cure the ineligibility for exemption.
Conclusion: The benefit of Notification No. 67/95 was denied and the duty demand on the molasses was upheld.
Issue (ii): Whether the demand was barred by limitation.
Analysis: The plea of limitation was rejected because the notice and the surrounding circumstances showed that the assessee had been directed to pay duty and had nevertheless continued to avail the exemption in circumstances where it was not available. No basis was found to extend the benefit of limitation to the assessee.
Conclusion: The plea of limitation was rejected.
Issue (iii): Whether the penalty imposed on the Managing Director was sustainable.
Analysis: The plea that the Managing Director was not involved in day-to-day operations was held insufficient to avoid penalty. The Managing Director was treated as responsible for ensuring compliance with law and written directions, and his connection with the evasion was not disbelieved.
Conclusion: The penalty on the Managing Director was upheld.
Final Conclusion: The appeals failed in their entirety and the adjudication in favour of the Department was affirmed on exemption, limitation, and penalty.
Ratio Decidendi: An exemption notification covering intermediate goods cannot be claimed where those goods are used in producing a final product cleared without duty, and a plea of non-involvement in daily operations does not by itself defeat penalty liability where compliance responsibility is established.
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