Marble block cutting not manufacture; extended customs limitation and penalties failed, while duty adjustment was allowed.

Cutting marble blocks into slabs or tiles during the relevant period did not amount to manufacture under section 2(f) of the Central Excise Act, so the excise duty demand on DTA clearances failed. The customs demand could be sustained only for the normal limitation period because the relevant import and clearance facts were already within departmental knowledge, and the duty paid on DTA clearances was allowed to be adjusted against the surviving customs liability. The imported marble blocks were not liable to confiscation, so redemption fine also failed. Penalties were deleted because suppression and intent to evade duty were not established.

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Issues: (i) whether cutting marble blocks into slabs or tiles during the relevant period amounted to manufacture and attracted central excise duty on DTA clearances; (ii) whether the customs demand could be sustained only for the normal period of limitation and whether the excise duty already paid on DTA clearances could be adjusted against the customs liability; (iii) whether the imported marble blocks were liable to confiscation and whether redemption fine was sustainable; and (iv) whether penalties could be imposed.

Issue (i): whether cutting marble blocks into slabs or tiles during the relevant period amounted to manufacture and attracted central excise duty on DTA clearances.

Analysis: The relevant tariff note during the disputed period did not treat cutting, sawing or sizing of stone blocks into slabs or tiles as manufacture. The activity undertaken was only cutting of marble blocks into slabs or tiles, and the applicable legal position under section 2(f) of the Central Excise Act, 1944 was that no new manufactured product emerged for the relevant period. The reasoning followed the settled view applied in the earlier identical dispute concerning marble processing.

Conclusion: The process did not amount to manufacture and the central excise duty demand was unsustainable, in favour of the assessee.

Issue (ii): whether the customs demand could be sustained only for the normal period of limitation and whether the excise duty already paid on DTA clearances could be adjusted against the customs liability.

Analysis: The facts relating to import, export and DTA clearances were within the department's knowledge through returns, supervision and permissions. On that basis, the ingredients required for invoking the extended period were not established, so the demand could survive only for the normal period under the proviso to section 28(1) of the Customs Act, 1962. The duty already paid on DTA clearances was treated as a payment to the Central Government and was held adjustable against the customs liability for the normal period, because the payment was not regarded as one made under a mistaken, refundable head on the facts of the case.

Conclusion: The extended period demand was set aside, the customs demand was confined to the normal period, and adjustment of excise duty against the surviving customs liability was allowed, in favour of the assessee.

Issue (iii): whether the imported marble blocks were liable to confiscation and whether redemption fine was sustainable.

Analysis: The imported marble blocks had already been processed and were no longer available for confiscation. They were not prohibited goods, nor was any import condition found to have been violated in a manner attracting confiscation under sections 111(d) and 111(o) of the Customs Act, 1962. Since confiscation itself was not maintainable, the consequential redemption fine under section 125 also could not stand.

Conclusion: Confiscation and redemption fine were set aside, in favour of the assessee.

Issue (iv): whether penalties could be imposed.

Analysis: The department's knowledge of the relevant transactions, regular filing of returns and supervision of the clearances negatived suppression of facts or intent to evade duty. In the absence of those foundational ingredients, the penal provisions were not attracted.

Conclusion: All penalties were deleted, in favour of the assessee.

Final Conclusion: The dispute resulted in partial relief to the assessee: excise duty and all penalties were set aside, the customs demand survived only for the normal period with adjustment of duty already paid, and confiscation with redemption fine was annulled.

Ratio Decidendi: For a 100% EOU, a process of cutting marble blocks into slabs or tiles during the relevant period did not constitute manufacture; where the department already knew the relevant facts, the extended limitation could not be invoked; and duty already paid on DTA clearances could be adjusted against the surviving customs demand for the normal period.

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