Clubbing of clearances rejected for separate units, but retained duty collections were includible and supported extended limitation.

Independent manufacturing units operating on a principal-to-principal basis could not have their clearances clubbed merely because goods were manufactured for or sold on behalf of another unit; that component of the demand failed. Excise duty collected from loan licencees and retained by the assessee was includible in the value of clearances, and the extended period of limitation was sustainable for that undisclosed collection. The demand was therefore sustained only to the extent of the duty collections, with recomputation directed on that basis.

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Issues: (i) Whether goods manufactured by one unit and cleared by it on behalf of another were to be treated as clearances of the latter and clubbed with its own clearances; (ii) Whether excise duty collected from loan licencees but not paid to the Government was to be added to the value of the assessee's clearances; (iii) Whether the longer period of limitation was validly invoked.

Issue (i): Whether goods manufactured by one unit and cleared by it on behalf of another were to be treated as clearances of the latter and clubbed with its own clearances.

Analysis: The units were separate and distinct and their dealings were on a principal-to-principal basis. The manufacturing unit had shown the relevant clearances in its own classification lists and had paid duty or claimed exemption in accordance with the notifications. Clearances made by one unit could not be shifted into the account of another merely because the goods were manufactured for that other unit or sold under its name.

Conclusion: The clubbing of clearances was not sustainable and this issue was decided in favour of the assessee.

Issue (ii): Whether excise duty collected from loan licencees but not paid to the Government was to be added to the value of the assessee's clearances.

Analysis: The assessee had collected duty from the loan licencees, and those collections formed part of the assessable value for the relevant period notwithstanding that the assessee itself had not crossed the exemption threshold. The collection could not be ignored for determining the value of clearances.

Conclusion: Addition of the duty collections to the value of clearances was upheld and this issue was decided against the assessee.

Issue (iii): Whether the longer period of limitation was validly invoked.

Analysis: The material concerning manufacture through another unit was already reflected in the classification lists, so suppression was not made out on that aspect. However, the duty collected from the loan licencees and retained by the assessee was not disclosed to the Department and was discovered only on scrutiny of records. Extended limitation was therefore sustainable for that component of the demand.

Conclusion: The longer period of limitation was not justified for the clubbing issue but was justified for the duty-collection issue.

Final Conclusion: The demand based on clubbing of another unit's clearances was set aside, but the demand based on duty collected from the loan licencees was sustained, and the matter was remitted for recomputation on that basis.

Ratio Decidendi: Clearances made by an independent manufacturing unit cannot be clubbed in the account of another unit merely because the goods were manufactured for or sold on behalf of it, but amounts of excise duty collected from customers and retained by the assessee are includible for valuation and may support extended limitation where not disclosed.

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