Power-free manufacture exemption depends on the assessee's own process, while disclosure to the Department defeats suppression.

Notification No. 65/87 applied because the exemption condition turned on whether the assessee's own manufacture of HDPE woven sacks was without the aid of power; the fact that the base material had been produced with power by another person did not defeat the benefit. The duty demand therefore failed on merits. The extended period of limitation was also unavailable because the assessee had disclosed the proposed manufacture and clearances to the Department, so suppression could not be alleged, and the demand was time-barred. Penalty was nevertheless justified for non-compliance with the classification procedure, but it was reduced from Rs. 10,000 to Rs. 5,000.

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Issues: (i) Whether the benefit of Notification No. 65/87 was available where the assessee manufactured HDPE woven sacks without the aid of power but used base material produced with power; (ii) Whether the demand was barred by limitation for want of suppression; (iii) Whether the penalty required interference.

Issue (i): Whether the benefit of Notification No. 65/87 was available where the assessee manufactured HDPE woven sacks without the aid of power but used base material produced with power.

Analysis: The notification granted nil rate of duty to the specified goods falling under sub-heading 6301.00 when made without the aid of power. The relevant condition attached to the entry was confined to the assessee's own manufacturing process. There was no stipulation that the exemption would be denied because the starting material or base material had been manufactured with the aid of power by another person. Since the assessee's manufacture was undisputedly without the aid of power, the condition in the notification stood satisfied.

Conclusion: The assessee was entitled to the benefit of Notification No. 65/87 and the duty demand was not sustainable on merits.

Issue (ii): Whether the demand was barred by limitation for want of suppression.

Analysis: The assessee had informed the Department about the proposed manufacture and clearance of the goods without the aid of power at nil rate of duty under the notification. In these circumstances, suppression of facts could not be attributed to the assessee so as to justify invocation of the extended period. The absence of a classification list did not amount to suppression on the facts of the case.

Conclusion: The extended period of limitation was not available and the demand was barred by limitation.

Issue (iii): Whether the penalty required interference.

Analysis: Although the duty demand could not survive, the omission to follow the prescribed classification procedure constituted a contravention warranting penalty. However, the amount of penalty was liable to be moderated in the circumstances.

Conclusion: The penalty was sustained but reduced from Rs. 10,000 to Rs. 5,000.

Final Conclusion: The assessee succeeded on the duty demand and limitation issues, while the penalty survived only in reduced form, resulting in a partial allowance of the appeal.

Ratio Decidendi: For an exemption conditioned on goods being made without the aid of power, the relevant inquiry is whether the assessee's own manufacture used power, and not whether the raw or base material had been manufactured with power elsewhere; disclosure to the Department negatives suppression for invoking the extended period.

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