Concessional duty clearances cannot face duty demand or penalty while the eligibility certificate remains operative.

Clearances under the concessional-duty scheme were held to depend on a valid, operative eligibility or end-user certificate, and duty demand with penalty could not be sustained while that authorization remained uncancelled. The reasoning applied the scheme under the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 and stressed that recovery must follow the prescribed statutory mechanism for challenging or cancelling the certificate first. On that basis, the manufacturer could not be fastened with duty liability for the impugned clearances, and the duty demand and penalty were deleted.

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Issues: (i) whether the demand of duty and penalty could be sustained when the exemption certificate or annexure enabling clearances at concessional rate had not been cancelled; (ii) whether the manufacturer could be fastened with duty liability for clearances made to an end user under the concessional-duty scheme.

Issue (i): whether the demand of duty and penalty could be sustained when the exemption certificate or annexure enabling clearances at concessional rate had not been cancelled.

Analysis: The clearances were made on the strength of an eligibility certificate and the scheme under the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. The record showed that the certificate permitting duty-free clearance remained operative and had not been cancelled. Once the certificate continued to hold field, the demand could not be raised by ignoring that operative authorization. The reasoning adopted also recognised that, where cancellation of such certificate is required, the department must first proceed in accordance with the statutory mechanism before invoking recovery.

Conclusion: The demand of duty and the penalty were not sustainable in the absence of cancellation of the operative certificate.

Issue (ii): whether the manufacturer could be fastened with duty liability for clearances made to an end user under the concessional-duty scheme.

Analysis: The exemption was granted on the basis of end-user certification for use in the manufacture of specified goods. The liability under the scheme attached to the person who obtained and undertook to comply with the certification conditions, and the manufacturer could not be made liable unless the entitlement to exemption was first disallowed. The operative principle was that the benefit of the concessional scheme could not be denied to the supplier while the supporting certification remained valid and unchallenged.

Conclusion: The manufacturer could not be held liable to pay duty on the impugned clearances.

Final Conclusion: The impugned order was set aside and the appeal was allowed, resulting in deletion of the duty demand and penalty.

Ratio Decidendi: A duty demand under a concessional-clearance scheme cannot be sustained against the manufacturer while the eligibility certificate or end-user authorization remains uncancelled and operative, and recovery must follow the prescribed statutory mechanism for challenging that authorization first.

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