Free supply exemption from excise duty applies when certificates prove distribution to weaker sections under an approved programme.

A 100% Export Oriented Unit supplying nutritious food under the World Food Programme project was not liable to excise duty where the supplies were shown to have been distributed free of cost to economically weaker sections and the prescribed certificates were produced. The relevant Exim Policy exempted such free supplies from duty, subject to documentary proof from the competent authorities of actual distribution under an approved programme. The Tribunal had recorded a factual finding that the goods were in fact distributed free of cost on the basis of duly produced certificates, and on that foundation the duty demand could not be sustained.

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Issues: Whether the respondent, a 100% Export Oriented Unit supplying nutritious food under the World Food Programme project, was liable to excise duty when the goods were stated to have been distributed free of cost to the weaker sections of society and the required certificates were produced.

Analysis: The relevant Exim Policy provisions provided that no excise duty was payable on such supplies made free of cost to the weaker sections, subject to production of certificates from the concerned authorities showing actual free distribution under an approved programme. The certificates were found to have been duly produced, and the Tribunal had examined them and recorded a factual finding that the goods had in fact been distributed free of cost to economically weaker sections. On that factual foundation, no liability to excise duty could be fastened.

Conclusion: The demand of excise duty was not sustainable and the respondent was not liable to pay the duty.

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