Capital goods exemption under Notification No. 67/95 can apply even when the manufacturer is not the user

Notification No. 67/95 was stated to extend exemption to capital goods under Rule 57Q of the Central Excise Rules, 1944 even where the manufacturer did not itself use the goods in its own factory. On that reasoning, a steam boiler manufactured and installed in another factory would still qualify for the exemption, so no duty demand could be sustained. The commentary further states that any penalty dependent on the duty demand would also fail once the exemption applied. The stated result was that both the duty demand and the penalty were unsustainable.

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Issues: Whether the steam boiler manufactured and installed in another factory was covered by Notification No. 67/95 so as to exclude the duty demand and the consequential penalty.

Analysis: The exemption under Notification No. 67/95 applied to capital goods defined in Rule 57Q of the Central Excise Rules, 1944 manufactured in a factory and used within the factory of production. The recorded reasoning, read with the Tribunal and Supreme Court position referred to in the order, showed that the benefit of the notification was available even if the manufacturer of the capital goods did not itself use the goods in its own factory of production. Once the steam boiler was held to be exempt, no duty demand could survive, and the penalty, being dependent on duty liability, also could not stand.

Conclusion: The issue was decided in favour of the assessee, and the duty demand and penalty were held unsustainable.

Ratio Decidendi: Where capital goods fall within Notification No. 67/95, duty cannot be demanded merely because the manufacturer is not the user in its own factory, and any penalty founded on such duty liability must also fail.

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