Physical control did not defeat an excise exemption where the assessee remained within the exemption limit.

An assessee required to work under physical control under Rule 173RJ of the Central Excise Rules, 1944 could not be denied the benefit of exemption already available under Notification No. 158/71 merely because it had not opted for the simplified procedure. On the facts, the goods remained within the exemption limit, and the proviso to Notification No. 14/76 did not operate to withdraw the exemption. The assessee was therefore entitled to continue availing the exemption, and the duty demand for the relevant period was not sustainable; the order-in-appeal was upheld and the review failed.

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Issues: Whether an assessee required to work under physical control could be denied the benefit of exemption under Notification No. 158/71 merely because it had not opted for the simplified procedure and the demand for duty for the relevant period was therefore sustainable.

Analysis: The assessee was manufacturing goods covered by the exemption notification and was within the exemption limit. The operative question was whether the proviso to Notification No. 14/76 deprived such an assessee of the exemption for the period in dispute. The decision turned on the position that, where the assessee was required to work under physical control under Rule 173RJ of the Central Excise Rules, 1944, the exemption already conferred by Notification No. 158/71 could not be taken away on the facts of the case.

Conclusion: The assessee was entitled to continue to avail of the exemption, and the demand for duty was not sustainable. The order-in-appeal was upheld and the review proceedings failed.

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