Exemption for packing material sustained where Revenue failed to prove that clearance permission did not cover the disputed goods.

Duty demand on polythene pouches used for packing fresh mushrooms cleared to the domestic tariff area was held unsustainable because the Revenue failed to substantiate its factual challenge to the scope of the Development Commissioner's permission. The exemption under Notification No. 1/95-CE was treated as applicable to goods used for production, processing or packaging in the user industry, subject to Exim Policy clearance conditions, and the unit had been permitted to clear part of its production to the domestic tariff area. The Commissioner (Appeals)' order was upheld and the Revenue's appeal dismissed, leaving the exemption benefit intact.

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Issues: Whether the duty demand on polythene pouches used for packing fresh mushroom cleared to the domestic tariff area was sustainable, and whether the benefit of Notification No. 1/95-CE was unavailable for want of permission from the Development Commissioner.

Analysis: The dispute turned on a factual question as to whether the Development Commissioner's permission covered the clearances in question. The impugned order had recorded that the notification exempted goods used for production, processing or packaging in the user industry, subject to clearance conditions under the Exim Policy, and that the unit was permitted to clear part of its production to the domestic tariff area. The Revenue did not produce documentary material to substantiate its contrary plea that such permission did not extend to the goods cleared.

Conclusion: The duty demand was not sustainable and the Commissioner (Appeals)' order was upheld; the Revenue's appeal was dismissed, in favour of the assessee.

Final Conclusion: The exemption benefit for the packing material was retained and the adjudged duty demand did not survive.

Ratio Decidendi: Where the Revenue fails to substantiate its factual challenge to the scope of permission supporting the exempt clearances, the demand cannot be sustained.

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