Rule 196 demand fails where Chapter X goods are fully accounted for despite inapplicable exemption notification.

Rule 196 could not sustain a demand where goods obtained under Chapter X were fully accounted for and used for packing the assessee's product. The provision applies only to accounting defaults in respect of Chapter X goods, not to a separate objection that exemption under Notification No. 181/88-C.E. was unavailable. If any demand was otherwise maintainable, it had to be raised under the appropriate provision, not under Rule 196. The demand under Rule 196 was therefore set aside and the assessee succeeded.

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Issues: Whether a demand could be sustained under Rule 196 when the goods obtained under Chapter X were fully accounted for, even though the exemption under Notification No. 181/88-C.E. was not available to the assessee.

Analysis: The goods were procured under Chapter X procedure for use in packing the assessee's product, and the record showed that the containers were duly accounted for and utilised for that purpose. Rule 196 is attracted only where there is failure to account for goods obtained under the Chapter X mechanism. The mere inapplicability of Notification No. 181/88-C.E. did not by itself justify a demand under Rule 196, because that rule addresses accounting defaults and not the broader question of exemption eligibility. Any demand, if otherwise maintainable, had to be raised under the appropriate provision and not under Rule 196.

Conclusion: The demand under Rule 196 was not sustainable; the appeals were allowed in favour of the assessee.

Ratio Decidendi: Rule 196 cannot be invoked where goods obtained under Chapter X are fully accounted for, even if the exemption claimed for those goods is ultimately found inapplicable.

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