Exempt goods and clandestine removal: duty demand failed, and penalties could not survive without a valid tax liability.

Goods classified under Chapter Heading 84.24 and covered by Notifications No. 46/94-CE and 56/95-CE were held not liable to duty, so the demand could not be sustained merely on an allegation of clandestine removal. The attempted reliance on Modvat credit was not accepted as a basis to uphold the confirmation of duty in this appeal. Once the duty demand failed, the penalties imposed on the company and its officers also lacked an independent foundation and were set aside.

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Issues: Whether the duty demand confirmed on the cleared goods was sustainable when the goods were classifiable under chapter heading 84.24 of the Schedule to the Central Excise Tariff Act and were eligible for exemption under the relevant notifications, and whether the penalties could survive once the demand was set aside.

Analysis: The goods in dispute were accepted as falling under chapter heading 84.24 and as eligible for exemption under Notification No.46/94-CE dated 1.3.1994 and Notification No.56/95-CE dated 16.3.1995. In that situation, the liability to duty could not be fastened merely on the allegation of clandestine removal. The objection based on availment of Modvat credit was not accepted as a basis to sustain the demand in this appeal, since the issue before the Tribunal was the correctness of the duty confirmation itself. Once the duty demand failed, the penalties imposed on the company and its officers also had no independent foundation.

Conclusion: The duty demand was not sustainable and the penalties were liable to be set aside. The appeals succeeded.

Ratio Decidendi: Where goods are found to be exempt from duty, a demand cannot be sustained solely on the ground of clandestine removal, and penalties based entirely on such demand cannot survive.

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