Exemption notification dispute failed for lack of reliable testing and corroborative evidence; demand, interest and penalty were set aside.

Imported fabric cleared under Notification No. 106/95-Cus was subject to re-export of the final product, and the dispute concerned whether the exported goods were in fact manufactured from that fabric. The original testing was based on estimation, the sample was not available for retesting, and no independent corroborative evidence was produced to support misuse of the exemption notification. On that record, the earlier test result could not be reliably validated and the adjudication lacked evidentiary support. The demand, interest and penalty were therefore held not sustainable, and the impugned order was set aside in favour of the assessee.

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Issues: Whether the demand, interest and penalty could be sustained when the original testing was based on estimation, the sample was not available for retesting, and no corroborative evidence was produced to establish misuse of the exemption notification.

Analysis: The imported fabric was cleared under Notification No. 106/95-Cus subject to re-export of the final product. The dispute turned on whether the exported goods were manufactured from the imported fabric, but the original test results were not capable of validation by retest because the sample was not traceable. In these circumstances, the earlier testing remained unsupported by any reliable corroboration, and the record did not contain independent evidence to sustain the conclusion reached in the adjudication order.

Conclusion: The demand, interest and penalty were not sustainable and the impugned order was set aside in favour of the assessee.

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