Conditional exemption for power plant fuel requires strict eligibility; later expansion of beneficiaries applies prospectively, while penalty needs evasion intent.

Conditional exemption under Notification No. 6/2002-CE for Low Sulphur Heavy Stock used in a thermal power plant applied only where the fuel was intended for generation of electrical energy by a qualifying electricity undertaking or a person holding the relevant licence or sanction during the disputed period. The text states that the beneficiaries did not satisfy those eligibility conditions, and that the later inclusion of "generating company" operated prospectively from 1 March 2003. It also notes that duty could be recovered from the buyer under the undertaking and Rule 6 of the 2001 Rules. On penalty, procurement through Annexure-I certificates and the interpretative nature of the dispute were said to negate intent to evade, so penalty was deleted.

---

---

Issues: (i) Whether Low Sulphur Heavy Stock (LSHS) procured for use in the thermal power plant qualified for exemption under Sl. No. 29 of Notification No. 6/2002-CE for the period in dispute; (ii) Whether penalty was exigible for procurement of LSHS under Annexure-I certificates despite non-eligibility to the exemption.

Issue (i): Whether Low Sulphur Heavy Stock (LSHS) procured for use in the thermal power plant qualified for exemption under Sl. No. 29 of Notification No. 6/2002-CE for the period in dispute.

Analysis: The exemption entry required the fuel to be intended for generation of electrical energy by an electricity undertaking owned or controlled by specified public authorities, or by a person licensed under Section 3 of the Indian Electricity Act, 1910, or sanctioned under Section 28 of that Act. The appellants were held not to be an electricity undertaking owned or controlled by TNEB, and they had not established that they possessed the requisite licence or sanction for the relevant period. The amendment introducing "generating company" was held to operate prospectively from 1.3.2003 and not to govern the period in dispute. The demand was also recoverable from the buyer under the undertaking and Rule 6 of the 2001 Rules.

Conclusion: The exemption was not available to the appellants for the period in dispute, and the duty demand with interest was sustained.

Issue (ii): Whether penalty was exigible for procurement of LSHS under Annexure-I certificates despite non-eligibility to the exemption.

Analysis: Although the appellants were found ineligible for the exemption during the disputed period, the goods were procured under the departmental certificate procedure and were used for the intended purpose. The dispute turned on rival interpretations of the notification and the connected statutory provisions, and the record did not support a finding of intent to evade duty.

Conclusion: Penalty was not warranted and was set aside.

Final Conclusion: The duty demand and interest were upheld, but the penalty was deleted, leaving the appeal partly successful only on the penalty question.

Ratio Decidendi: A conditional exemption notification must be strictly construed, mandatory eligibility conditions must be satisfied for the disputed period, a later amendment enlarging the class of beneficiaries operates prospectively unless clearly made retrospective, and penalty cannot be imposed absent intent to evade duty where the dispute is essentially interpretative.

---