Contemporaneous inspection protects area-based exemption; later suspicion alone cannot justify withdrawal of refund benefits.

Area-based exemption and refund benefit, once granted after contemporaneous factory inspection and satisfaction that plant and machinery were in operation and commercial production had begun, could not be withdrawn merely on later investigation and suspicion about invoices or supplier statements. The later material did not show a contemporaneous verification disproving the existence or working condition of the unit, nor did it reliably establish that the earlier approval was or that a new unit had not been set up. The impugned withdrawal and refund recovery were therefore set aside, and the appellant retained the exemption and refund benefit.

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Issues: Whether the appellant was liable to lose the area based exemption and consequent refund benefit on the basis of later investigation alleging that the new unit was not established and the machinery invoices were fabricated.

Analysis: The exemption had been granted after the jurisdictional Deputy Commissioner inspected the factory and recorded satisfaction that the declared plant and machinery were in operation and that commercial production had commenced. The subsequent withdrawal rested mainly on later verification of invoices and statements of suppliers, but the record did not show a contemporaneous verification of the machinery actually installed and working at the relevant time, nor did it establish with reliable documentary corroboration that the earlier approval was or that the appellant had not set up a new unit. A later doubt raised by investigation was held insufficient to displace a benefit already extended on prior scrutiny and inspection.

Conclusion: The withdrawal of the exemption and recovery of refund were not justified; the issue was decided in favour of the appellant.

Final Conclusion: The impugned order was set aside and the appellant retained the area based exemption and refund benefit.

Ratio Decidendi: A duly granted fiscal exemption, based on contemporaneous inspection and approval, cannot be withdrawn merely on post facto suspicion unless the later material is supported by reliable corroborative evidence establishing misuse or falsity.

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