Presumption of non-manufacture cannot defeat contemporaneous records, and area-based exemption follows where manufacture is supported by evidence.

A demand of duty and recovery of refund based on an allegation of non-manufacture was unsustainable where the record showed periodic departmental checks, approvals from the Directorate of Industries and the Pollution Control Board, and movement of goods and vehicles, while the investigation relied mainly on assumptions and material from another commissionerate. On that evidentiary basis, the finding that no manufacture had taken place could not stand, and the demand and penalty were set aside. Once manufacture was accepted, the unit was entitled to area-based exemption under Notification No. 56/2002-CE and the consequential refund relief could not be denied or reversed without concrete proof.

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Issues: (i) Whether the demand of duty and recovery of refund on the allegation that the appellants were not manufacturers was sustainable. (ii) Whether the appellants were entitled to the benefit of exemption under Notification No. 56/2002-CE dated 14.11.2002 and the consequential refund relief.

Issue (i): Whether the demand of duty and recovery of refund on the allegation that the appellants were not manufacturers was sustainable.

Analysis: The allegation rested mainly on an investigation conducted at another commissionerate and on the assumption that the farmers and commission agents from whom raw material was said to have been procured were non-existent. The record also showed periodical departmental checks, permissions from the Directorate of Industries and the Pollution Control Board, and movement of goods and vehicles. In the absence of concrete evidence from investigation at the appellants' end, the finding that no manufacture had taken place could not be sustained.

Conclusion: The demand and penalty were not sustainable and the issue was decided in favour of the appellants.

Issue (ii): Whether the appellants were entitled to the benefit of exemption under Notification No. 56/2002-CE dated 14.11.2002 and the consequential refund relief.

Analysis: Once the allegation of non-manufacture failed, the record-supported position that the appellants were manufacturing units in Jammu and Kashmir entitled them to the area-based exemption. The refund already granted through PLA could not be reversed on the basis of a presumptive case unsupported by corroborative material.

Conclusion: The appellants were held entitled to the exemption and consequential relief.

Final Conclusion: The impugned orders were set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: A demand based only on assumptions and an investigation not conducted at the assessee's premises cannot displace contemporaneous departmental records and other corroborative evidence showing manufacture; exemption and related refund relief cannot be denied without concrete proof of non-manufacture.

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