Factory-use exemption did not cover electricity supplied to colony and hospital; limitation and penalty turned on departmental knowledge and suppression.

Exemption under Notification No. 52/78 was treated as confined to electricity consumed within the factory for manufacture of goods, so supply to a residential colony and hospital did not qualify even if they were within the same compound. Limitation depended on when the Department gained knowledge of the supply arrangement: for the period after such knowledge, the normal limitation applied, while earlier periods could attract the extended period if suppression was established. Penalty was considered justified where electricity was manufactured and cleared without licence and without proper duty, although the quantum could be reduced on the facts.

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Issues: (i) whether electricity generated and supplied to the residential colony and hospital was eligible for exemption under Notification No. 52/78; (ii) whether the demand for duty was barred by limitation for the entire period or only for part of it; and (iii) whether penalty was leviable and, if so, to what extent.

Issue (i): whether electricity generated and supplied to the residential colony and hospital was eligible for exemption under Notification No. 52/78.

Analysis: The exemption was confined to electricity consumed in the factory for manufacture of goods. Supply of generated electricity to the residential colony and hospital did not fall within that use. The fact that the colony and hospital were within the same compound did not create any distinction for the purpose of the notification.

Conclusion: The benefit of exemption was not available in respect of electricity supplied to the residential colony and hospital.

Issue (ii): whether the demand for duty was barred by limitation for the entire period or only for part of it.

Analysis: The record showed that the Department had knowledge, at least from 22-12-1978 and possibly earlier, that electricity was being supplied to the colony and hospital. For the period after such knowledge, the normal period of limitation applied. For the earlier period, the circumstances disclosed suppression of facts, making the extended period potentially available. As the precise date of departmental knowledge could not be fixed on the available material, the exact time-bar position could not be finally determined.

Conclusion: The question of limitation required fresh determination, and the matter was remitted for deciding which part of the demand was within time.

Issue (iii): whether penalty was leviable and, if so, to what extent.

Analysis: Manufacture and clearance of electricity without licence and without payment of proper duty justified imposition of penalty. However, the circumstances warranted reduction of the amount originally imposed.

Conclusion: Penalty was upheld but reduced.

Final Conclusion: The duty liability on electricity supplied to the colony and hospital was sustained, the limitation question was sent back for fresh adjudication, and the penalty was reduced.

Ratio Decidendi: Exemption restricted to electricity consumed in manufacture does not extend to supply to colony or hospital, and where the Department's knowledge affects the applicable limitation period, the exact time-bar issue must be decided on clear facts before final assessment.

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