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Issues: (i) whether PPE blades cleared to a project site were eligible for nil rate of duty under Notification No. 3/2001-C.E. in view of the condition in List 5 requiring parts to be consumed within the factory of production; and (ii) whether the penalty equal to duty could be sustained.
Issue (i): whether PPE blades cleared to a project site were eligible for nil rate of duty under Notification No. 3/2001-C.E. in view of the condition in List 5 requiring parts to be consumed within the factory of production.
Analysis: The notification granted exemption to specified non-conventional energy devices and systems, and List 5, S. No. 20, expressly required that the parts be consumed within the factory of production for manufacture of the goods specified in S. Nos. 1 to 19. The condition was treated as controlling, and the fact that the parts were cleared outside the factory for use at the buyer's site did not satisfy the exemption requirement.
Conclusion: The exemption was not available, and the duty demand was upheld in favour of the Revenue.
Issue (ii): whether the penalty equal to duty could be sustained.
Analysis: Although the duty confirmation was sustained, the circumstances were found insufficient for imposition of penalty equal to the duty amount. The penalty was therefore reduced to a nominal amount.
Conclusion: The penalty was not sustained at the original level and was reduced to Rs. 2,000.
Final Conclusion: The exemption claim failed on the facts and the demand stood confirmed, but the penal consequence was substantially scaled down.
Ratio Decidendi: Where an exemption notification expressly conditions relief on consumption of parts within the factory of production, the benefit cannot be extended to goods cleared for use outside that factory.
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