Exemption conditions requiring outside authority certification are directory when substantial compliance is shown and delay is not the assessee's fault.

Delayed production of the Drug Controller certificate did not defeat entitlement to exemption under Notification No. 234/86-CE because the assessee had pursued the certificate and the delay arose from the outside public authority, not from lack of diligence. The certification condition was treated as directory rather than mandatory since compliance depended partly on the assessee and partly on an external authority. Substantial compliance was sufficient to retain the exemption benefit, and the demand and penalties were set aside.

---

---

Issues: Whether the assessee was entitled to exemption under Notification No. 234/86-CE despite delay in producing the certificate from the Drug Controller of India, and whether the certificate requirement was mandatory or directory.

Analysis: The product was accepted as eligible for the benefit of the notification, subject to production of the certificate within the time allowed. The assessee had been pursuing the Drug Controller for issuance of the certificate, and the delay was attributable to the outside authority rather than any lack of diligence by the assessee. The certificate was ultimately issued and produced. The condition depended partly on the assessee and partly on a public authority, and the delay could not be used to deny the substantive benefit. The reasoning was supported by the principle that where compliance depends in part on an outside agency, substantial compliance is sufficient and the condition is not mandatory in the strict sense.

Conclusion: The assessee's delayed production of the certificate did not disentitle it from the exemption, and the condition was treated as directory; the issue was decided in favour of the assessee.

Final Conclusion: The demand and penalties were set aside and the appeal succeeded on the ground that the exemption could not be denied for delayed compliance caused by the outside certifying authority.

Ratio Decidendi: A condition for availing an exemption that depends partly on the assessee and partly on an outside public authority is directory, and substantial compliance with that condition is sufficient to retain the exemption benefit.

---