Set-off credit and limitation: procedural non-compliance could not defeat exemption, and extended time failed without suppression or fraud.
Set-off credit under Notification No. 225/86-C.E. could not be denied where the input was undisputedly used in manufacture of the final product and the department had full knowledge, physical control, and approval of the working procedure. A separate set-off register mentioned only in a trade notice, lacking statutory force and not communicated as a mandatory notification condition, could not override substantive eligibility; duty, confiscation, and penalty were therefore unsustainable on that basis. The demand was also time-barred because the record showed no wilful suppression, fraud, or calculated misstatement, so the extended limitation period was unavailable.
Issues: (i) Whether the assessee's method of utilising set-off credit under Notification No. 225/86-C.E. was contrary to the prescribed procedure so as to deny the exemption and sustain duty, confiscation, and penalty; (ii) Whether the demand was barred by time in the absence of wilful suppression or fraud.
Issue (i): Whether the assessee's method of utilising set-off credit under Notification No. 225/86-C.E. was contrary to the prescribed procedure so as to deny the exemption and sustain duty, confiscation, and penalty.
Analysis: The Notification granted set-off for duty already paid on inputs used in the manufacture of the final product, and the record showed that acrylonitrile was undisputedly used as an input in the manufacture of acrylic fibre. The assessee's factory was under physical control, the departmental officers scrutinised the records and returns, and the procedure followed had been approved by the jurisdictional Assistant Collector. The alleged requirement of maintaining a separate set-off register was traced only to a trade notice, which had no statutory force and had not been brought to the assessee's notice as a mandatory condition of the notification. Procedural or technical non-observance could not override the substantive eligibility to the exemption where the department had full knowledge and control.
Conclusion: The assessee was entitled to the benefit of set-off, and the demand, confiscation, and penalty could not be sustained on this ground.
Issue (ii): Whether the demand was barred by time in the absence of wilful suppression or fraud.
Analysis: The materials showed continuous departmental supervision, regular checking of records, and no concealment of the input-output movement or credit utilisation. The allegation of calculated fraud was not supported by the show-cause notice or the proved facts. In the absence of suppression of facts or wilful misstatement, the extended period of limitation was not available.
Conclusion: The demand was time-barred.
Final Conclusion: The impugned order could not be sustained, and the appeal succeeded with the consequential setting aside of the adjudication order.
Ratio Decidendi: Where the substantive conditions of an exemption or set-off notification are satisfied, a purely procedural requirement or trade notice lacking statutory force cannot be used to deny the benefit, and the extended period of limitation is unavailable without proved suppression or fraud.
TaxTMI 
AI Drafter ✕
TaxTMI 
TaxTMI 
