Ambiguity in remaking duty-paid goods under Rule 173-H was resolved in favour of the assessee, with part of the demand time barred.

Ambiguity in Rule 173-H of the Central Excise Rules, 1944 governing remaking of duty-paid rejected or broken glass vials was construed in favour of the assessee, because the rule permitted retention of such goods for remaking while also creating doubt about whether a manufacturing process would defeat its benefit. The assessee's reprocessing under departmental approval was therefore within the rule, and the duty demands failed on the substantive issue. On limitation, the notices did not allege suppression of facts or wilful misstatement, so the extended period could not be invoked merely because the department later changed its stand. A substantial part of the demands was time barred.

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Issues: (i) Whether remaking of duty-paid rejected or broken glass vials under Rule 173-H of the Central Excise Rules, 1944 amounted to manufacture so as to deny the benefit of the rule; (ii) whether the demands of duty were sustainable in view of the alleged time bar.

Issue (i): Whether remaking of duty-paid rejected or broken glass vials under Rule 173-H of the Central Excise Rules, 1944 amounted to manufacture so as to deny the benefit of the rule.

Analysis: The process adopted in reprocessing the rejected vials was treated as manufacture, but the rule itself was found to contain an internal ambiguity because it permitted retention or receipt of duty-paid goods for remaking while also denying removal after a process amounting to manufacture. The rule was general in character and not limited to any commodity. The benefit of ambiguity in a statutory provision was held to go to the subject, and the absence of any other practical method of removing defects in the vials supported application of the rule.

Conclusion: The benefit of Rule 173-H could not be denied to the assessee, and the duty demands were unsustainable.

Issue (ii): Whether the demands of duty were sustainable in view of the alleged time bar.

Analysis: The notices did not allege suppression of facts or wilful misstatement, and the assessee had been acting with departmental approval under the procedure contemplated by Rule 173-H. In that setting, the extended demands could not be supported merely on the department's later change of stand.

Conclusion: A substantial portion of the demands was held to be time barred.

Final Conclusion: The departmental appeals failed, and the dismissal of the duty demands was upheld on both the substantive interpretation of Rule 173-H and the limitation objection.

Ratio Decidendi: Where a fiscal provision governing remaking of duty-paid goods is ambiguous, the construction favorable to the assessee must be adopted, particularly when the assessee acted under departmental permission and no suppression or wilful misstatement is shown.

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