Exemption notification compliance requires full factual inquiry before duty liability is confirmed on imported capital goods.

Where a show cause notice alleges non-utilisation of duty-free capital goods and breach of exemption notification conditions, the adjudication must address that factual foundation with a reasoned inquiry. The record here indicated that the central question was whether the imported capital goods were installed and used for manufacture and export as required, but the relevant material had not been examined in depth. The existing adjudication was therefore set aside and the matter was remanded for fresh adjudication after comprehensive verification of utilisation, production, exports, records, and other contemporaneous evidence.

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Issues: Whether the adjudication order, which proceeded without a detailed examination of the allegations in the show cause notice regarding non-utilisation of duty-free capital goods and violation of exemption notification conditions, could be sustained, and whether the matter required remand for fresh adjudication.

Analysis: The show cause notice specifically alleged that the duty-free capital goods imported for use in the notified area were not utilised for manufacture and export of the permitted end product, thereby attracting duty liability under the relevant exemption notifications. The findings recorded that the real controversy was whether the assessee had complied with the notification conditions and whether the capital goods were installed and used for manufacture. Since the earlier proceedings had proceeded on a different footing and the material facts bearing on utilisation, production, exports, records, power consumption, income-tax and sales tax returns, labour records, and other contemporaneous evidence had not been examined in depth, a fuller factual inquiry was required.

Conclusion: The existing adjudication could not be allowed to stand and the matter was sent back to the adjudicating authority for a detailed re-examination of the factual allegations and supporting documents.

Final Conclusion: The dispute was not finally determined on merits and was restored for fresh adjudication after comprehensive verification of whether the imported capital goods were installed and used in accordance with the exemption conditions.

Ratio Decidendi: Where the core allegation is non-compliance with exemption notification conditions, a reasoned adjudication must address the specific factual foundation of the show cause notice and, if necessary, undertake a complete enquiry before determining duty liability.

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