Suppression and limitation: prior departmental knowledge defeated extended demand, while unaccounted goods still justified confiscation.

Prior departmental knowledge of the manufacture and clearance of latex adhesive defeated the allegation of suppression, so extended limitation could not be invoked and the duty demand was set aside. The demand also failed on merits because the evidence supported manufacture of latex compound/adhesive and did not establish diversion of foam products. Unaccounted excisable goods were nevertheless liable to confiscation under the rule covering goods manufactured but not accounted for, so confiscation was sustained. Because the duty demand failed, the penalty basis was weakened and the penalty was reduced to a token amount.

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Issues: (i) whether the duty demand was sustainable in view of alleged suppression and the period of limitation; (ii) whether confiscation of the goods was justified for non-accountal; and (iii) whether the penalty required interference.

Issue (i): Whether the duty demand was sustainable in view of alleged suppression and the period of limitation.

Analysis: The record showed that the department had knowledge of the manufacture and clearance of latex adhesive from April 1984, including through prior declarations and correspondence. In those circumstances, the allegation of suppression could not be sustained for extending the demand period. The demand also failed on merits because the evidence supported the finding that latex compound/adhesive was in fact manufactured, and the department did not establish the alleged diversion of foam products under that guise.

Conclusion: The demand of duty was not sustainable and was set aside.

Issue (ii): Whether confiscation of the goods was justified for non-accountal.

Analysis: The goods were admittedly found unaccounted on inspection. Confiscation was upheld not on the basis of removal from the factory, but because the applicable provision covered excisable goods manufactured and not accounted for. The authorities relied on the correct clause of the rule, and the cited authorities concerning removal were held inapplicable to the facts.

Conclusion: The confiscation was sustained.

Issue (iii): Whether the penalty required interference.

Analysis: Since the duty demand was not sustained, the basis for the penalty was materially weakened. At the same time, confiscation remained justified. In that situation, the penalty was considered excessive and was reduced to a token amount.

Conclusion: The penalty was reduced.

Final Conclusion: The assessee succeeded on the duty demand and limitation issue, but the confiscation was maintained and the penalty was scaled down, resulting in only partial relief.

Ratio Decidendi: Once the department had prior knowledge of the relevant clearances, suppression could not be invoked to extend limitation; however, unaccounted excisable goods remained liable to confiscation under the rule covering manufacture without accountal.

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