Strict construction of exemption notification defeats entry tax relief where export conditions for imported DG sets were breached.

An exemption notification granting nil entry tax to a one hundred per cent export oriented unit had to be strictly complied with, including use of the imported goods in the manufacture of export goods and export of the entire production subject to permitted relaxation. Because the DG sets were used to generate power for the domestic tariff area unit and exports were negligible during the relevant period, the conditions of the notification were breached. The unit therefore lost eligibility for the exemption, and entry tax, interest and penalty were held recoverable under the notification and the enabling provision.

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Issues: Whether the assessee was entitled to exemption from entry tax on imported DG sets, parts and accessories under the notification dated 30.11.2001, and whether levy of entry tax, interest and penalty was justified when the goods were used contrary to the conditions of the notification.

Analysis: The exemption notification granted nil entry tax to one hundred per cent export oriented units, but only on satisfaction of specified conditions, including use of the goods in the manufacture of goods for export and export of the entire production subject to permitted relaxation. The notification also expressly provided that on breach of those conditions, the unit would cease to be eligible for the benefit and the consequences under section 11A(3) and section 8 would follow. The assessee had imported DG sets to generate power, but the record showed that the power so generated was used for the domestic tariff area unit and that exports during the relevant period were negligible compared with the total turnover. The exemption notification was therefore not complied with, and the Tribunal's view that there was no such restriction was inconsistent with the text of the notification.

Conclusion: The assessee was not entitled to the exemption. Levy of entry tax, interest and penalty was justified, and the Tribunal's order was unsustainable.

Final Conclusion: The revision succeeded and the assessment and consequential levy were restored.

Ratio Decidendi: An exemption notification granting tax relief to a special category of unit must be strictly construed, and once the specified conditions for eligibility are breached, the statutory consequences under the notification and the enabling provision follow.

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