Revenue-neutral exemption dispute defeats duty demand, with interest and penalty also held unsustainable.

Where an activity was treated as manufacture, the order found no enforceable duty liability because the assessee was entitled to exemption under the notification. Any duty paid through cash or Cenvat credit was therefore refundable, leaving the matter revenue neutral. On that basis, the duty demand could not survive, and the associated interest and penalty were also treated as unsustainable. The appeals were allowed with consequential relief.

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Issues: Whether the duty demand, interest and penalty were sustainable where the activity was treated as manufacture but the assessee was entitled to exemption and the situation was revenue neutral.

Analysis: The activity undertaken by the assessee was considered against the background of the earlier cancellation of registration and the later revenue stand that the activity amounted to manufacture. The order noted that the assessee was entitled to the benefit of the exemption notification and, therefore, any duty paid in cash or through Cenvat credit would be refundable. In that situation, no real duty burden survived, and the matter was treated as revenue neutral. On that basis, the demand of interest and the imposition of penalty were also held to be unsustainable.

Conclusion: The duty demand, interest and penalty were not sustainable and the appeals were allowed with consequential relief.

Ratio Decidendi: Where the assessee is entitled to exemption and the dispute is revenue neutral, no enforceable duty, interest or penalty liability survives.

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