Mandatory Chapter X compliance defeats excise exemption claims based only on substantial compliance and intended use.

Exemption from excise duty on intermediate goods under Chapter X of the Central Excise Rules, 1944 requires strict observance of the prescribed procedure. The Constitution Bench ruling treats that procedure as mandatory because it verifies receipt of the goods by the recipient unit and their actual utilisation, and guards against diversion or misuse under the guise of exemption. A plea of substantial compliance based only on records at the recipient end is therefore insufficient to satisfy the remission conditions. The exemption claim must be supported by full procedural compliance, and the issue was answered against the assessee and in favour of the Revenue.

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Issues: Whether exemption from excise duty on intermediate goods could be claimed on the basis of substantial compliance and intended use, without following the procedure prescribed under Chapter X of the Central Excise Rules, 1944.

Analysis: The binding Constitution Bench ruling held that the Chapter X procedure is designed to establish receipt of goods by the recipient unit and their actual utilisation, and to prevent diversion or misuse of goods under the guise of exemption. The procedure is not merely directory, and a plea of substantial compliance based on records at the recipient end does not satisfy the mandatory requirements for remission of duty. The claim for exemption therefore depends on strict observance of the prescribed procedure.

Conclusion: The requirement of compliance with Chapter X is mandatory, and substantial compliance is insufficient. The issue was answered against the assessee and in favour of the Revenue, and the appeals were remitted for consideration of any remaining issues.

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