Tariff classification and limitation principles govern duty on sugar syrup, with bona fide belief defeating extended time and penalty.

Sugar syrup obtained by dissolving crystal sugar in water was treated as separately classifiable under the tariff and remained dutiable because non-marketable use in confectionery did not, by itself, establish exemption; the absence of evidence of instability or inability to market the product was decisive. The demand for the earlier period failed on limitation because the manufacturing process was already known to the department, the omission from the classification list was attributed to bona fide belief, and extended limitation was not available. As the demand was time-barred, the penalty also could not survive, leaving the assessee successful on limitation despite the duty finding on merits.

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Issues: (i) Whether sugar syrup obtained by dissolving crystal sugar in water and classifiable under Tariff sub-heading 1702.30 was liable to central excise duty; (ii) whether the demand for the period 1-3-1986 to 28-2-1987 was barred by limitation and whether penalty was sustainable.

Issue (i): Whether sugar syrup obtained by dissolving crystal sugar in water and classifiable under Tariff sub-heading 1702.30 was liable to central excise duty.

Analysis: Sugar syrup was separately classifiable under Tariff sub-heading 1702.30. The fact that the product was not being marketed did not, by itself, establish that it was non-marketable. In the absence of evidence showing instability or inability to be marketed, the product could not be treated as exempt from duty merely because it was used captively in confectionery manufacture.

Conclusion: The product was liable to central excise duty and this issue was decided against the assessee.

Issue (ii): Whether the demand for the period 1-3-1986 to 28-2-1987 was barred by limitation and whether penalty was sustainable.

Analysis: The manufacturing process was already known to the department and had existed even before the new tariff came into force. The omission to disclose the product in the classification list was treated as arising from a bona fide belief, reinforced by the earlier exemption position and the absence of a parallel notification until the later amendment. On these facts, the extended period was not available and the notice issued in 1991 for the earlier period was time-barred. Since the demand itself failed on limitation, the penalty also could not survive.

Conclusion: The demand was barred by limitation and the penalty was unsustainable; this issue was decided in favour of the assessee.

Final Conclusion: The duty liability on the product was upheld on merits, but the demand and penalty were set aside as time-barred, leaving the assessee substantially successful in the appeal.

Ratio Decidendi: A product specifically classifiable under the tariff is dutiable unless non-marketability is shown by evidence, but a demand cannot be sustained beyond limitation where the department was already aware of the process and the omission was attributable to bona fide belief rather than wilful suppression.

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