Hon’ble Tarun Agarwala, J.—The appellant is a Company incorporated under the Indian Companies Act and is engaged in the manufacture of sugar. During the course of manufacture of sugar, molasses emerges as a by-product. This molasses is stored in steel tanks/pucca pits and are cleared on payment of duty from time to time. The storage and clearance of molasses is physically controlled by the State Excise Department as molasses is a raw material for the manufacture of potable alcohol. An Excise Inspector stays in the factory premises and undertakes frequent physical verification of the stock of molasses. This physical verification is done at random by a dip rod method. Whenever a physical verification is undertaken, the physical stock of molasses is ascertained and the same is intimated to the State Excise Department as well as to the Central Excise Department.

2. Molasses is a highly sensitive and volatile goods. The volume of molasses, which are stored in steel tanks and pucca pits, expands with the rise of temperature and there is a heavy risk of auto combustion. Consequently, the physical stock of molasses is affected due to a number of factors, namely, dip reading method which is not an accurate method and is based on estimation as it also includes the foam level and the foam level is deducted only by estimation and, therefore, there is a margin of error. Further, volume of molasses increases with the rise in temperature, inasmuch as, carbon dioxide is generated and the carbon dioxide gas bubbles in the molasses increases the volume and consequently, shows a higher reading in the physical stock at the time of dip reading. Further, in order to ensure that the temperature of the molasses does not exceed beyond alarming limits, the steel tanks are frequently sprayed with water in order to avoid auto combustion and also to control the temperature. Not only the above, since sugar is present in the molasses due to decomposition foaming is generated in the molasses and consequently, water is sprayed on the outer surface of the steel tanks. The water so sprayed on the tanks often finds it way into the tanks through the gaps in joints and open spaces at the top. This ultimately results in the increase in the volume of molasses. Similarly, rain water also increase the volume of molasses which are kept in open pucca pits.

3. In view of the difficulty in the storage of molasses, physical verification is done from time to time and the volume of molasses is recorded. As per practice, a physical verification was done on 7.4.2006 and molasses to the tune of 5000 quintals was found in excess. Information of this excess stock was given to the U.P. Excise Department as well as to the Central Excise Department.

4. The Central Excise Department directed the appellant by letter dated 8.6.2006 to clarify the circumstances which caused an increase in the stock of the molasses. The query of the Department was duly replied, in spite of which, a show-cause notice dated 26.6.2007 was issued alleging that the increase in the volume of molasses after closure of the factory indicated clandestine manufacture of sugar which was cleared without payment of duty and consequently, directed the appellant to show-cause as to why duty on clandestine removal of sugar should not be imposed alongwith penalty, etc. The appellant filed a detailed reply to the show-cause notice. The Commissioner of Central Excise passed an order in original confirming the duty demand and imposed penalty. Being aggrieved, the appellant preferred an appeal before the Tribunal, which was partly allowed.

5. The Tribunal set aside the duty demanded beyond one year prior to the issuance of the show-cause notice dated 27.6.2007 holding that the extended period of limitation under Section 11-A of the Central Excise Act could not be invoked and, consequently, also set aside the imposition of penalty under Rule 25 of the Central Excise Rules, 2002 (hereinafter referred to as the Rules).