Naval stores exemption denied where departmental permission was limited to depots; disputed certificate-based clearances remanded for verification.

Exemption under Notification No. 64/95-CE was denied for goods supplied to IOCL for onward supply to the Indian Navy because departmental permission covered only the appellant's own depots and installations, and no permission existed for the impugned mode of supply; the duty demand was upheld to that extent. The portion of the demand said to relate to clearances under CT-2/AR3A certificates was not examined by the original authority, so that limited issue was remanded for factual verification and fresh adjudication. In light of the partial remand and factual background, the penalties were set aside.

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Issues: (i) Whether goods supplied to IOCL for onward supply to the Indian Navy were eligible for exemption under Notification No. 64/95-CE; (ii) whether the demand relating to goods claimed to have been cleared under CT-2/AR3A certificates required verification and fresh adjudication; (iii) whether the penalties were sustainable.

Issue (i): Whether goods supplied to IOCL for onward supply to the Indian Navy were eligible for exemption under Notification No. 64/95-CE.

Analysis: The permission granted by the department was only in relation to the appellant's own depots and installations. The correspondence did not show any permission for clearances to IOCL(W) for the impugned supplies. The earlier Tribunal decision on the same notification and similar naval stores was held applicable, while the decisions relied on by the appellant were found distinguishable on facts and on the relevant exemption entry.

Conclusion: The exemption was not available for the supplies in question, and the duty demand was upheld to that extent.

Issue (ii): Whether the demand relating to goods claimed to have been cleared under CT-2/AR3A certificates required verification and fresh adjudication.

Analysis: The claim that part of the clearances were made under CT-2/AR3A certificates was not examined by the original authority. The Tribunal therefore found that this portion of the demand needed factual verification before final liability could be fixed.

Conclusion: The matter was remanded to the original adjudicating authority for verification and fresh orders on this limited aspect.

Issue (iii): Whether the penalties were sustainable.

Analysis: In view of the factual background and the partial remand, the Tribunal found that the penalties could not be sustained.

Conclusion: The penalties were set aside.

Final Conclusion: The duty demand was sustained substantially, the CT-2/AR3A component was sent back for re-verification, and the penal consequences were deleted.

Ratio Decidendi: Exemption under a notification for naval stores cannot be extended where departmental permission is confined to specified depots and no permission exists for the impugned mode of supply; a disputed portion of the demand must be remanded for factual verification where relevant certificates were not examined.

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