SSI exemption claim can be raised in appeal; duty deposit during investigation does not waive contesting rights.

An SSI exemption claim under Notification No. 8/2003-CE could be examined for the first time in appeal because the applicability of an exemption notification is a pure question of law where the relevant facts are already on record. Mere payment of duty and part penalty during investigation did not amount to acceptance of liability or waiver of the exemption plea, since the assessee had challenged the demand in appeal. The appellate order was set aside and the matter remanded for fresh consideration of the exemption claim and other permissible issues, including limitation and cum-duty treatment.

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Issues: (i) Whether the claim to benefit of SSI exemption under Notification No. 8/2003-CE could be examined when raised for the first time before the appellate authority. (ii) Whether payment of duty and part penalty during investigation could be treated as acceptance of liability so as to bar the assessee from contesting the exemption claim.

Issue (i): Whether the claim to benefit of SSI exemption under Notification No. 8/2003-CE could be examined when raised for the first time before the appellate authority.

Analysis: The applicability of an exemption notification is a pure question of law when the relevant facts are already on record. A legal plea not raised before the original authority is not barred from consideration in appeal merely on that ground. The appellate authority is required to decide the matter in accordance with law and cannot refuse examination only because the issue was not urged earlier.

Conclusion: The assessee was entitled to have the exemption claim examined on merits before the appellate authority.

Issue (ii): Whether payment of duty and part penalty during investigation could be treated as acceptance of liability so as to bar the assessee from contesting the exemption claim.

Analysis: Mere deposit of duty and interest during investigation does not, by itself, amount to acceptance of liability where the assessee has challenged the adjudication order in appeal. Filing of an appeal indicates protest against the demand, and the deposits cannot be treated as a waiver of the right to claim the benefit of the notification.

Conclusion: The duty payment did not preclude the assessee from claiming the exemption benefit.

Final Conclusion: The impugned appellate order was set aside and the matter was remanded to the original adjudicating authority for fresh consideration of the exemption claim and other permissible issues, including limitation and cum-duty treatment.

Ratio Decidendi: A legal claim to exemption, where facts are already on record, can be raised at any stage of proceedings, and payment of duty during investigation does not amount to acceptance of liability when the demand is contested in appeal.

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