Procedural lapse in D-3 intimation did not defeat exemption for doubled yarn made from duty-paid input yarn.

Doubled or multifold yarn manufactured from duty-paid single yarn remained eligible for exemption where the substantive condition of prior duty payment on the input yarn was satisfied. The mere failure to file D-3 intimation under the proforma credit procedure was treated as a procedural lapse, and not as proof that the exemption conditions were breached. In the absence of any enquiry or material showing that the input yarn was not duty paid, the omission did not justify a duty demand. The lapse was viewed in the context of the exemption scheme and the brief period during which the exemption had been withdrawn.

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Issues: Whether duty was payable on doubled or multifold yarn manufactured from duty paid single yarn merely because the assessee did not file the D-3 intimation under the proforma credit procedure.

Analysis: The dispute arose in the period after withdrawal of the exemption and before its restoration. The exemption for doubled or multifold yarn was not unconditional and applied only where the yarn was manufactured from yarn on which appropriate duty had been paid. The omission relied upon by the department was the failure to furnish D-3 intimation under the proforma credit procedure. In the facts of the case, no enquiry was made as to whether the input yarn was duty paid, and there was no material to show that the yarn used in doubling was not duty paid or that the exemption condition was otherwise violated. The lapse was treated against the backdrop of the exemption scheme and the short intervening period during which the exemption had been withdrawn.

Conclusion: The failure to file D-3 declaration was a condonable lapse and did not justify the duty demand.

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