Exemption by incorporated definition fails after repeal, but bona fide interpretational doubt can defeat penalty.

An exemption notification that defined bulk drugs by reference to DPCO 1987 became unworkable once that instrument was repealed, so the concessional rate under Notification No. 6/94 was unavailable for the interregnum until exemption was restored by a later notification; the duty demand was therefore sustainable. However, the surrounding notification sequence and the dependence on a repealed definition created bona fide interpretational doubt, so penalty was not warranted and was set aside. The result was partial relief to the assessee, with duty upheld but penal consequences rejected.

---

---

Issues: (i) Whether the concessional rate of duty under Notification No. 6/94 remained available for the disputed bulk drugs during the period after repeal of DPCO 1987 and before issuance of the subsequent notifications; (ii) Whether penalty was justified in the facts of the case.

Issue (i): Whether the concessional rate of duty under Notification No. 6/94 remained available for the disputed bulk drugs during the period after repeal of DPCO 1987 and before issuance of the subsequent notifications.

Analysis: The exemption notification defined bulk drugs by reference to DPCO 1987. Once DPCO 1987 was repealed, the notification became unworkable because the definition incorporated by reference ceased to exist. The later amendment deleting the relevant entry and the fresh notification restoring exemption showed that the concessional entry had become non-operative in the interregnum. The disputed clearances therefore did not qualify for the concessional rate during the relevant period.

Conclusion: The concessional exemption was not available for the disputed period and the duty demand was sustainable.

Issue (ii): Whether penalty was justified in the facts of the case.

Analysis: The surrounding sequence of notifications and the dependence of the exemption on a repealed definition created sufficient scope for doubt as to the correct duty position. In such circumstances, penal consequences were not warranted.

Conclusion: The penalty was not justified and was set aside.

Final Conclusion: The duty demand was sustained, but the penal demand did not survive, resulting in partial relief to the assessee.

Ratio Decidendi: Where an exemption notification incorporates by reference a definition contained in a repealed instrument and is not independently workable, the exemption ceases to operate until restored by a valid subsequent notification; penalty is not warranted where the assessee acts under bona fide interpretational doubt.

---