Exemption for computers used in institute training upheld, but penalty survived for failure to disclose manufacture.

Computers assembled in an educational institute's computer lab and used for student training qualified for exemption under Notification No. 167/71-C.E., because the prescribed condition that the goods be produced in the institute during training, experiments, or research was satisfied; duty was therefore not leviable and the demand was set aside. The assessee's failure to intimate the manufacture to the Department, however, attracted penal consequences under Rule 173Q of the Central Excise Rules, 1944, so the penalty was sustained. The outcome was partial relief: the duty demand failed, but the penalty remained in force.

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Issues: (i) Whether duty was payable on computers assembled in the appellant's premises and used for imparting computer training, in view of the exemption notification; (ii) Whether penalty was sustainable for non-intimation of such manufacture to the Department.

Issue (i): Whether duty was payable on computers assembled in the appellant's premises and used for imparting computer training, in view of the exemption notification.

Analysis: The components purchased were assembled into computers in the computer lab and the computers were used for training students. The goods fell within the exemption available under Notification No. 167/71-C.E. dated 11-9-71 as amended, subject to satisfaction of the prescribed condition that the goods were produced in the institute during the course of imparting training or carrying out experiments or research. On the facts recorded, that condition stood satisfied.

Conclusion: Duty was not leviable and the demand was set aside in favour of the assessee.

Issue (ii): Whether penalty was sustainable for non-intimation of such manufacture to the Department.

Analysis: Although the duty demand failed, the appellant had not brought the manufacture of computers to the notice of the Department. That omission attracted penal consequences under Rule 173Q of the Central Excise Rules, 1944.

Conclusion: The penalty was upheld against the assessee.

Final Conclusion: The demand of duty was deleted, but the penalty remained in force, resulting in a partial relief to the assessee.

Ratio Decidendi: Where exempted goods are manufactured and used within an educational institute for training and the statutory exemption conditions are met, no duty is leviable, but failure to disclose the manufacture may still attract penalty under the applicable penalty rule.

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