Unproven breach of exemption notification cannot sustain customs demand or penalty without specific pleading and evidence.

Customs demand and penalty based on alleged breach of Notification No. 203/92-Cus. could not be sustained because the factual basis of the alleged violation was neither specifically pleaded nor proved by evidence. The show cause notice did not disclose how the original licence holder was said to have taken input stage credit, and the adjudication order relied only on assumption that credit may have been availed because the final product was excisable. A demand or penalty cannot rest on conjecture or unsupported allegation where the alleged notification breach remains unestablished. The demand and penalty were therefore set aside.

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Issues: Whether the customs demand and penalty could be sustained on the allegation that the transferees of VBAL licences were not entitled to duty-free clearance because the original licence holder had availed input stage credit in breach of Notification No. 203/92-Cus. dated 19-5-1992.

Analysis: The show cause notice did not disclose the basis of the allegation that input stage credit had been availed by the original licence holder. The adjudication order also did not rely on any evidence to establish such availment and proceeded only on the assumption that credit may have been taken because the final product was excisable. A demand and penalty cannot be sustained on conjecture or unsupported allegation, particularly where the alleged violation of the notification is not established by evidence.

Conclusion: The demand and penalty were not sustainable and were set aside in favour of the assessee.

Ratio Decidendi: A customs demand and penalty based on alleged violation of an exemption notification cannot stand unless the factual basis of the breach is specifically pleaded and proved by evidence.

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