Suppression and marketability of captively used benzyl cyanide sustained duty demand, with limited recomputation and penalty upheld.

False declaration in the classification list and non-disclosure of the true captive use of inputs justified invocation of the extended period on the basis of suppression and misdeclaration. Captively consumed benzyl cyanide was treated as marketable, as the record showed only minor physical differences and no technical evidence of non-marketability, so it remained dutiable. The duty demand was, however, remitted for limited re-computation on packing cost, reversal of Modvat credit and any quantity used in duty-free by-products. Penalty was upheld because the finding of deliberate suppression remained intact.

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Issues: (i) whether the extended period of limitation was invocable on the ground of suppression and misdeclaration; (ii) whether captively consumed benzyl cyanide was marketable and therefore dutiable; (iii) whether the duty demand required re-computation on account of packing cost, reversal of credit and use in by-products; and (iv) whether penalty was sustainable.

Issue (i): whether the extended period of limitation was invocable on the ground of suppression and misdeclaration.

Analysis: The classification list claimed exemption for the inputs on the footing that they were used in manufacture of dutiable goods, although the final product was exempt. Earlier classification lists, Modvat correspondence, process declarations and gate passes did not establish disclosure of the impugned captive clearances under the relevant exemption notification. The record showed a false claim in the classification list and a patent misrepresentation regarding the use of the inputs.

Conclusion: The extended period was correctly invoked and the finding of suppression and misdeclaration was sustained against the assessee.

Issue (ii): whether captively consumed benzyl cyanide was marketable and therefore dutiable.

Analysis: The comparison with the saleable product showed only narrow differences in colour and density, while no technical evidence was produced to show that the captively consumed product was not marketable. The material placed on record was insufficient to distinguish the internal product from the saleable variety.

Conclusion: Captively consumed benzyl cyanide was held to be marketable and dutiable against the assessee.

Issue (iii): whether the duty demand required re-computation on account of packing cost, reversal of credit and use in by-products.

Analysis: The valuation could not ignore the point that packing cost was treated differently for captive consumption. The reversed Modvat credit relating to inputs used for the duty-free final product had to be taken into account on confirmation of demand. Further, if any portion of benzyl cyanide went into by-products cleared without duty, the benefit of the exemption notification would be available to that extent. These matters required recalculation by the adjudicating authority.

Conclusion: The duty demand was remitted for fresh computation on these limited aspects in favour of the assessee.

Issue (iv): whether penalty was sustainable.

Analysis: Since suppression and deliberate misdeclaration were found on the evidence, the foundation for penalty remained intact. The penalty was not considered excessive in relation to the duty confirmed, and no reduction was warranted merely because the duty figure might be reworked on remand.

Conclusion: Penalty was upheld against the assessee.

Final Conclusion: The demand and penalty were substantially sustained, but the duty was remitted only for limited re-computation on valuation and related adjustments.

Ratio Decidendi: A false declaration in a classification list, coupled with non-disclosure of the true use of captively consumed goods, supports invocation of the extended period and confirmation of duty where the captively consumed product remains marketable.

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