Strict construction of exemption notifications bars duty-free relief for flood-destroyed goods not used for export production.

A conditional exemption under Notification No. 22/2003-CE for duty-free procurement by a 100% EOU applied only where the goods were proved to the proper officer to have been used in connection with export production or packaging, or where the notification expressly permitted destruction of specified rejected goods. Goods destroyed by floods before use did not satisfy those conditions, and they could not be treated as rejected goods by stretching the notification beyond its plain terms. Exemption notifications must be strictly construed, and no clause in the notification covered duty remission for loss caused by a natural disaster. The duty demand was therefore sustainable.

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Issues: Whether goods procured duty-free by a 100% EOU under Notification No. 22/2003-CE, which were destroyed in floods before being used in the manufacture of export goods, could still be treated as eligible for the notification and immune from duty demand.

Analysis: The notification was conditional and contemplated duty-free procurement only where the goods were proved to the satisfaction of the proper officer to have been used in connection with production or packaging for export, or where destruction of specified rejected goods was permitted in the manner provided by the notification. The goods in question were admittedly not so used and were destroyed by floods. The attempt to equate flood-damaged goods with rejected goods amounted to stretching the notification beyond its plain terms. Exemption notifications must be construed strictly, and no provision in the notification covered remission of duty for goods lost due to natural disaster. The decisions cited, being concerned with remission under Rule 21 of the Central Excise Rules, 2002, did not assist the appellant.

Conclusion: The duty demand was sustainable and the appeal failed.

Ratio Decidendi: A conditional exemption notification must be strictly construed, and goods not shown to have satisfied the prescribed conditions cannot be treated as exempt merely because they were destroyed before use, unless the notification itself expressly provides for such a contingency.

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