Excisability of captively used by-product and extended limitation depend on tariff identity and absence of suppression.

Carbon dioxide generated as a by-product during beer manufacture and used captively in the same factory remains excisable if it is identifiable as the tariff commodity and no impurity or other material difference is shown; the note states that duty is therefore chargeable on classification grounds. It also notes that the extended limitation period is unavailable where the assessee disclosed captive consumption in returns, the department was aware of the activity, and there is no suppression of facts or intent to evade duty; on that basis, demand beyond six months and penalty are unsustainable. The note records only partial relief, with merits-based duty liability preserved but extended-period demand and penalty set aside.

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Issues: (i) Whether carbon dioxide arising as a by-product in the manufacture of beer and used captively in the factory was an excisable commodity chargeable to duty; (ii) Whether the demand for the period beyond six months was barred by limitation and whether penalty was sustainable.

Issue (i): Whether carbon dioxide arising as a by-product in the manufacture of beer and used captively in the factory was an excisable commodity chargeable to duty.

Analysis: The carbon dioxide was generated during fermentation and was used in the same factory in the manufacture of beer. The fact that it was a by-product did not, by itself, take it outside the tariff. The record did not show any impurity making it something other than carbon dioxide, and the process and use established that it was the same commodity as carbon dioxide purchased from outside. The plea that beer was not a beverage was rejected as without merit.

Conclusion: The carbon dioxide was chargeable to duty as carbon dioxide, and the assessee failed on the issue of classification/excisability.

Issue (ii): Whether the demand for the period beyond six months was barred by limitation and whether penalty was sustainable.

Analysis: The dispute had been alive for years, the assessee had been filing regular returns showing captive consumption, and the department was aware of the production and use of the gas. The materials did not support suppression of facts or intent to evade duty, and the authorities themselves had treated the matter as under examination. In these circumstances, invocation of the extended period was not justified, and there was no basis for penalty.

Conclusion: The demand beyond six months was barred by limitation and the penalty was unsustainable, in favour of the assessee.

Final Conclusion: Duty liability was upheld on the merits, but the extended-period demand and penalty were set aside, resulting in only a partial relief to the assessee.

Ratio Decidendi: A captively used by-product remains excisable if it is identifiable as the tariff commodity, but the extended limitation period cannot be invoked without suppression of facts or intent to evade duty, especially where the department has knowledge of the manufacture and use.

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