Penalty under exemption notification set aside where assessee relied on project authority certificate and no knowing misuse was shown.

Penalty was held unwarranted where exemption was availed on the strength of a certificate issued by the project authorities and there was no material showing that the assessee knowingly misused the benefit. The subsequent finding that the funding agency did not satisfy the description required under Notification No. 108/95-C.E. was treated as a mitigating factor, not as a basis for penal action. On those facts, the penalty was set aside in favour of the assessee.

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Issues: Whether penalty was sustainable when the exemption had been availed on the basis of a certificate from the project authorities and the funding agency was later found not to qualify for exemption under Notification No. 108/95-C.E. dated 28-8-1995.

Analysis: The exemption was claimed on the strength of a certificate issued by the project authorities, and the appellants were not shown to have knowingly misused the exemption. The later realisation that the funding agency did not answer the description required by the notification was treated as a mitigating circumstance. In those circumstances, the imposition of penalty was found unwarranted.

Conclusion: The penalty was not justified and was set aside in favour of the assessee.

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