Full disclosure defeats suppression, while exemption fails on merits where the product composition falls outside the notification.

Exemption under Notification No. 122/86 was unavailable on merits because the products contained metronidazole with another ingredient, and the notification did not permit the unspecified ingredient relied on by the assessee. However, the demand was not barred by limitation: the classification list, labels, and RT-12 returns disclosed the full composition, so mere incorrect reliance on exemption did not amount to suppression or misstatement with intent to evade duty. The normal limitation period therefore applied, and the extended period could not be invoked.

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Issues: (i) Whether the appellants were entitled to exemption under Notification No. 122/86 for the products in question; (ii) Whether the demand was barred by limitation in the absence of suppression or misstatement of facts.

Issue (i): Whether the appellants were entitled to exemption under Notification No. 122/86 for the products in question.

Analysis: The products contained Metronidazole along with another ingredient. Since the notification did not permit the use of an unspecified ingredient, the exemption could not be available on merits. The claim based on a second notification was also not established as a valid basis for exemption.

Conclusion: The issue was decided against the assessee.

Issue (ii): Whether the demand was barred by limitation in the absence of suppression or misstatement of facts.

Analysis: The classification list disclosed both ingredients, the labels also showed the same composition, and the RT-12 returns were assessed accordingly. In these circumstances, sufficient disclosure had been made and further enquiry ought to have been undertaken before final approval of classification. The mere fact that the exemption was wrongly claimed did not by itself establish suppression with intent to evade duty. The normal limitation period, therefore, governed the demand.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The exemption claim failed on merits, but the demand could not survive beyond the normal period because there was no actionable suppression once the material facts had been disclosed.

Ratio Decidendi: Where the assessee has fully disclosed the relevant composition in the classification list and labels, mere rejection of exemption on merits does not establish suppression or misstatement for invoking the extended period of limitation.

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