Manufacture from raw material and limitation on extended demand barred where disclosure was already made

Extracting sandalwood oil from sandalwood was treated as manufacture because the two products had different name, character and use, so the exemption under Notification No. 119/75 for job-work valuation was not available. On limitation, prior disclosure of the job-work arrangement, valuation basis and nature of production, together with the absence of any suppression allegation in the show-cause notices, meant the extended five-year period could not be invoked and recovery was confined to the normal six-month period. The orders below were set aside and relief followed for the assessee.

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Issues: (i) Whether the process of extracting sandalwood oil from sandalwood amounted to manufacture and whether the benefit of Notification No. 119/75 was available. (ii) Whether the demand was barred by limitation and the extended period could be invoked on the ground of suppression of material facts.

Issue (i): Whether the process of extracting sandalwood oil from sandalwood amounted to manufacture and whether the benefit of Notification No. 119/75 was available.

Analysis: Sandalwood and sandalwood oil were treated as different commodities with distinct name, character and use. The Tribunal applied the principle that processing a raw material into a different product amounts to manufacture for central excise purposes. Once the product was held to be manufactured goods under Item No. 68, the exemption under Notification No. 119/75, which related to valuation in job-work situations, was not available.

Conclusion: The process amounted to manufacture and the benefit of Notification No. 119/75 was not admissible; this issue was decided against the assessee.

Issue (ii): Whether the demand was barred by limitation and the extended period could be invoked on the ground of suppression of material facts.

Analysis: The record showed prior disclosure by the assessee of the job-work arrangement, the basis of valuation, and the nature of production through correspondence and approved classification lists. The show-cause notices did not allege suppression of material facts. In those circumstances, the longer period of five years was not available, and recovery was confined to the normal period of six months.

Conclusion: The demand was barred by limitation and the extended period could not be invoked; this issue was decided in favour of the assessee.

Final Conclusion: The orders of the lower authorities were set aside and the appeal succeeded with consequential relief to the assessee.

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