Strict compliance with exemption conditions required; excise duty sustained, but penalty deleted for bona fide belief and no contumacious conduct.

Exemption notifications must be strictly complied with: footwear sold below the prescribed retail price did not qualify because the additional condition that the goods be consumed within the factory for production was not met, so the excise duty demand was sustained. Penalty was deleted because the outsourcing arose only briefly due to labour problems and the exemption claim was advanced under a bona fide belief, showing no contumacious conduct.

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Issues: (i) Whether the appellant was entitled to exemption from excise duty under the notification dated 23-7-1996 in respect of footwear sold below the prescribed retail price despite non-fulfilment of the condition that the goods be consumed within the factory for production; (ii) Whether the penalty imposed on the appellant was liable to be set aside.

Issue (i): Whether the appellant was entitled to exemption from excise duty under the notification dated 23-7-1996 in respect of footwear sold below the prescribed retail price despite non-fulfilment of the condition that the goods be consumed within the factory for production.

Analysis: The exemption was subject not only to the retail sale price limit but also to the specific requirement that the goods be consumed within the factory for production. Although the footwear was sold below Rs. 75 per pair, the goods were sent to other factories for production and the stipulated condition was not satisfied.

Conclusion: The exemption claim was not available to the appellant and the duty demand was sustained.

Issue (ii): Whether the penalty imposed on the appellant was liable to be set aside.

Analysis: The appellant had its own factory for manufacture of footwear, and the outsourcing occurred only for a brief period because of labour problems. The claim of exemption for that period was made under a bona fide belief, which justified relief from penalty.

Conclusion: The penalty was set aside.

Final Conclusion: The demand of excise duty was maintained, but the penal consequence was deleted, resulting in only partial relief to the appellant.

Ratio Decidendi: Exemption notifications must be strictly complied with, and a penal levy may be deleted where the breach occurs in circumstances showing bona fide belief and absence of contumacious conduct.

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