Test-result tolerance in mixed fabrics must favour the assessee; extended limitation fails without proof of intent to evade duty.

Mixed-fabric test results were required to be read with the prescribed 2.5% tolerance in favour of the manufacturer, so classification could not rest on unadjusted laboratory results; the assessee's declared composition was therefore accepted and the classification upheld. The demand also could not rely on the extended limitation period because it was raised beyond the normal six-month period without tangible evidence of deliberate misdeclaration or intent to evade duty. In the absence of such proof, the demand was time-barred and did not survive.

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Issues: (i) Whether the tolerance factor prescribed for test results in mixed fabrics had to be applied in favour of the assessee while determining classification and duty liability; (ii) whether the demand was saved by the extended period of limitation on the basis of alleged misdeclaration with intent to evade duty.

Issue (i): Whether the tolerance factor prescribed for test results in mixed fabrics had to be applied in favour of the assessee while determining classification and duty liability.

Analysis: The test results of mixed fabrics were recognised as not being invariably exact, and the Board's circular provided for a 2.5% allowance in favour of the manufacturer. The proper method was to extend that tolerance to the assessee's declared composition rather than to use the tested result mechanically against it. On that approach, the composition remained consistent with the assessee's declaration and the classification adopted by the lower appellate authority was justified.

Conclusion: The tolerance factor was required to be applied in favour of the assessee, and the classification based on the assessee's declaration was upheld.

Issue (ii): Whether the demand was saved by the extended period of limitation on the basis of alleged misdeclaration with intent to evade duty.

Analysis: The demand notice was issued beyond the normal six-month period. No tangible evidence was shown to establish a deliberate misdeclaration or intent to evade duty. In the absence of such evidence, the extended period under the governing limitation provision could not be invoked.

Conclusion: The extended period of limitation was not available to the Revenue, and the demand was time-barred.

Final Conclusion: The impugned order was sustained, the Revenue's challenge failed, and the duty demand did not survive.

Ratio Decidendi: Where the governing circular requires test-result tolerance to be applied in favour of the assessee, classification cannot rest on unadjusted test results; and the extended limitation period for duty demand cannot be invoked without evidence of deliberate misdeclaration with intent to evade duty.

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