Excisability of dry compressed air and limitation on duty demand: marketable manufacture, no suppression, penalty set aside.

Dry compressed air was treated as excisable because it emerged through a manufacturing process as a distinct, marketable commodity with a separate name and use, bringing it within Tariff Item 68. The extended duty demand could not be sustained because suppression of facts was not established, as the department had knowledge of the manufacture and the record showed disclosure in correspondence. On that basis, the duty demand was held time-barred and the penalty under Rule 173Q was set aside, with the amount paid under protest directed to be refunded.

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Issues: (i) Whether dry compressed air was excisable under Tariff Item 68 of the Central Excise Tariff. (ii) Whether the demand for duty was barred by limitation and whether penalty under Rule 173Q was sustainable.

Issue (i): Whether dry compressed air was excisable under Tariff Item 68 of the Central Excise Tariff.

Analysis: Dry compressed air came into existence through a manufacturing process and emerged as a distinct, marketable commodity with a separate name and use. That character attracted levy under Tariff Item 68.

Conclusion: The issue was decided against the assessee and dry compressed air was held to be excisable.

Issue (ii): Whether the demand for duty was barred by limitation and whether penalty under Rule 173Q was sustainable.

Analysis: The demand covered a long period but the show cause notice was issued later. Suppression of facts was not established because the department had knowledge of the manufacture from the earlier period and the record indicated disclosure in correspondence concerning the new levy. In the absence of established suppression, the extended demand could not survive. The same circumstances also showed that the omission to declare the product was at most a technical lapse and did not justify penal action.

Conclusion: The issue was decided in favour of the assessee; the duty demand was held time-barred and the penalty was set aside.

Final Conclusion: The assessee succeeded on limitation and penalty, and the demand already paid under protest was directed to be refunded.

Ratio Decidendi: A product obtained by manufacture and known in trade as a distinct marketable commodity is excisable, but an extended duty demand cannot be sustained without proof of suppression of facts, and penalty is not warranted where the default is merely technical and no deliberate evasion is established.

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