Exemption denial based on non-payment of CVD was unsustainable where the demand rested on an incorrect footing.

Exemption under Notification No. 55/78-C.E. could not be denied on the stated ground that CVD had not been paid on the imported base yarn, because the show cause notice and impugned order were founded on that premise and the appellate authority had granted exemption where such CVD was paid. The contention that the notification applied only to indigenously manufactured base yarn was not the basis adopted in the proceedings below, so the demand and denial of exemption rested on an incorrect footing and could not be sustained.

---

---

Issues: Whether the exemption under Notification No. 55/78-C.E. could be denied and the demand sustained on the ground that CVD had not been paid on the imported base yarn.

Analysis: The demand and denial of exemption in the show cause notice and the impugned order were founded on non-payment of CVD on the imported yarn, and the appellate authority had itself extended the exemption where such CVD had been paid. The objection that the notification applied only to indigenously manufactured base yarn was not the ground on which the exemption was denied in the proceedings below. As the impugned action proceeded on an incorrect basis, the denial of exemption and consequent demand could not be sustained.

Conclusion: The demand was unsustainable and the appeal succeeded.

---