The main legal point established is the reliance on evidence of employment to determine duty liability and the applicability of exemptions and limitation periods in duty recovery.

1. The petitioner is a manufacturer of trailers, under the name and style of M/s Raja Industrial Works, Sringeri. The clearance of these trailers manufactured by the petitioner was exempted from levy of Excise duty under Notification No. 31/66 dated 1-3-1966. It was later found, on investigation, that the petitioner was not entitled to claim exemption under the said notification and a show-cause notice was issued as per Exhibit-A by the Asst. Collector of Central Excise, Davangere, proposing to levy duty on the clearances made during the period 1-11-1969 to 14-5-1976. The show-cause notice was issued on the strength of the material collected by the department that the declaration filed by the petitioner earlier to avail of the exemption under the said notification, was false.

2. Under Notification No. 31/66 exemption is granted to trailers falling under Item 34 of First Schedule of Central Excise and Salt Act, 1944, from the whole of the duty provided such trailers are manufactured in a factory which does not employ more than five workers. Accordingly, the petitioner had been granted exemption relying on the declaration made by it before the department.

3. In reply to the show-cause notice, the petitioner contended that the factory had two separate units, namely, a manufacturing unit and a sales and service unit. If only the manufacturing unit is taken into consideration, the number of persons employed was less than 4 and therefore, during the relevant period the petitioner would not be liable to pay any duty.

4. Disagreeing with this contention, the Asst. Collector in his order, as per Exhibit-C held that on the basis of the material and investigation done by the Department, the petitioner would be liable to pay duty on the clearances made between 1-11-1969 and 14-5-1976. The materials on which the original authority came to these conclusions were (i) the project report filed by the petitioner before the Asst. Director of Industries and Commerce, Chickmagalur, in which they had stated that they had employed 17 workers and they manufactured 175 trailers from 1971 to 1975, and (ii) the report of the Inspector of Factories, Shimoga Division, that the petitioner had employed 20 workers during 1974 and 1975 and 25 workers during 1976. This report was based on the declaration filed by the petitioner in Form II under the Factories Act. The Asst. Collector therefore held that the petitioner would be liable to pay duty on the clearances made between 1-11-1969 to 14-5-1976 and called upon the petitioner to pay duty of Rs 43,876.20.

5. Being aggrieved by this order, the petitioner filed an appeal before the Appellate Collector of Central Excise, Madras. The appellate authority, on a perusal of the records and the material relied upon by the Asst. Collector, held that the order of the original authority was justified on the facts and circumstances of the case. He held that the decision of the Supreme Court in A. K. Roy v. Voltas Limited - 1977 E.L.T. 177 relied upon by the appellant were not applicable to his case.

6. Being aggrieved with the order of the appellate authority the petitioner has filed this petition challenging the appellate order. It is argued by Sri Ranganath, learned Counsel on behalf of the petitioner that the demand made by the Asst. Collector as confirmed by the appellate authority, is liable to be set aside on more than one ground. His first contention is that the petitioner had employed less than 5 employees in the manufacturing unit of the factory and that the persons in the sales unit should be excluded from consideration for the application of the Notification No. 31/66.

He has also relied upon the decision of the Supreme Court in the case of Rohtas Industries Ltd. Vs. Shri Ramlakhan Singh and Others, AIR 1978 SC 849. Another ground raised in the writ petition relates to limitation in respect of the demand made. It is contended that the provisions of Rules 9 and 173(Q) of the Central Excise Rules, 1944 (here