Strict compliance for conditional excise exemptions: Chapter X procedure remains integral to eligibility, not a dispensable formality.

Conditional excise exemptions tied to Chapter X procedure must be strictly complied with where the notification makes registration, declaration, accounting and supervision part of eligibility. The analysis states that input relief under Notification No. 121/94-C.E. cannot be claimed on substantial compliance alone or on extrinsic proof of intended use, because the procedural requirements are integral to the exemption scheme, particularly in captive consumption settings where accountability of inputs is central. The earlier approach treating such conditions as relaxable was considered for reconsideration, and the legal issue was left open for authoritative review.

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Issues: Whether exemption under Notification No. 121/94-C.E. could be claimed without strict compliance with Chapter X procedure and whether the earlier view allowing substantial compliance required reconsideration.

Analysis: The notification granted input relief subject to observance of Chapter X procedure, and the scheme under Rules 173B, 173G, 174, 192 and 196 linked the exemption to registration, declaration, accounting and supervision of the goods received and used in the factory. The reasoning emphasised that conditional exemptions must be construed strictly and that compliance conditions cannot be treated as dispensable where the notification itself incorporates them as eligibility requirements. On that basis, the earlier approach accepting intended use by other evidence and substantial compliance was regarded as needing reconsideration, especially in captive consumption cases where accountability of inputs is central to the exemption scheme.

Conclusion: The matter was not finally decided on the exemption issue and was referred for consideration by a Larger Bench.

Final Conclusion: The decision does not affirm entitlement to the exemption on substantial compliance alone and leaves the legal issue open for authoritative reconsideration.

Ratio Decidendi: Where an exemption notification makes compliance with a prescribed procedure a condition of eligibility, the conditions must be strictly fulfilled and cannot be relaxed on the basis of substantial compliance or extrinsic proof of intended use.

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