Limitation and captive-use exemption: bare suppression was insufficient, and Chapter X lapse did not defeat Notification 118/75-C.E. relief.

Extended limitation could not be invoked where the show cause notices contained only a bare allegation of suppression and the manufacture of steam was disclosed in the assessee's ground plan; the demand for the period before 11-4-1983 was therefore time-barred. Exemption under Notification No. 118/75-C.E. was also available because the steam was captively consumed within the manufacturer's units, and non-observance of the Chapter X procedure was treated as a procedural lapse that did not defeat substantive entitlement when the notification's essential conditions were satisfied. The demand was set aside to the extent time-barred, and the exemption claim was upheld.

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Issues: (i) Whether the demand for duty for the period prior to 11-4-1983 was barred by limitation and whether the extended period could be invoked on the basis of suppression; (ii) Whether the assessee was entitled to exemption under Notification No. 118/75-C.E. despite non-observance of the Chapter X procedure.

Issue (i): Whether the demand for duty for the period prior to 11-4-1983 was barred by limitation and whether the extended period could be invoked on the basis of suppression.

Analysis: The show cause notices contained only a bare allegation of suppression and did not set out the ingredients needed to attract the extended period. The boilers and the steam generation activity were disclosed in the ground plan filed by the assessee, so the manufacture of steam could not be treated as suppressed on the facts presented.

Conclusion: The demand for duty for the period prior to 11-4-1983 was barred by limitation and could not be sustained.

Issue (ii): Whether the assessee was entitled to exemption under Notification No. 118/75-C.E. despite non-observance of the Chapter X procedure.

Analysis: The notification granted exemption to goods intended for use in the factory of production or in another factory of the same manufacturer. The steam was captively consumed within the manufacturer's units, and failure to follow the Chapter X procedure was treated as a procedural lapse that did not destroy the substantive entitlement where the essential conditions of the notification were satisfied.

Conclusion: The assessee was entitled to the benefit of Notification No. 118/75-C.E. notwithstanding non-compliance with the Chapter X procedure.

Final Conclusion: The demand was set aside to the extent it was time-barred, the exemption claim was upheld, and the appeal succeeded with the departmental cross-objection failing.

Ratio Decidendi: Procedural non-compliance with Chapter X does not defeat a substantive exemption when the essential conditions for captive use under the notification are otherwise satisfied, and the extended period of limitation cannot be invoked without a properly pleaded and established case of suppression.

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