Exemption notification non-compliance led to denial of concession, but differential duty with interest remained payable and penalty was set aside.

Non-compliance with the prior-option condition in Notification No. 8/03-C.E. meant the concessional exemption could not be retained, so the assessee had to pay duty at the higher applicable rate. As the goods were cleared on duty payment and there was no allegation of clandestine removal, the Tribunal treated the matter as regularisable by payment of the differential duty with interest. The confirmed duty demand and equal penalty were set aside, and harsh penal consequences were not sustained.

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Issues: Whether the demand of duty and equal penalty was sustainable where the assessee availed the benefit of Notification No. 8/03-C.E. without exercising the prescribed option and whether the assessee was liable only to pay the differential duty with interest.

Analysis: The assessee did not dispute that the condition of the exemption notification requiring prior option had not been complied with. On that basis, the concessional rate of duty under the notification could not be retained. At the same time, the assessee accepted liability to pay the duty at the higher applicable rate, and the record showed that the goods had been cleared on duty payment and there was no allegation of clandestine removal. In these circumstances, the Tribunal treated the case as one where the benefit of the notification had to be denied, but the matter could be regularised by payment of the differential duty and applicable interest. The plea for harsh penal consequences was not accepted.

Conclusion: The assessee was held liable to pay the differential duty with interest within the time granted, while the confirmed demand of duty amounting to Rs. 1,52,886/- and the equal penalty were set aside. The appeal was partly allowed in favour of the assessee.

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