Duty exemption defeats confiscation and penalty where no evasion remains under the exemption notification.

Where polyethylene films were treated as exempt from duty under Notification No. 208/84 issued under Section 11C, the basis for alleging duty evasion disappeared. On that footing, confiscation and penalty under Rule 173Q could not be sustained because no independent reason was recorded to justify either consequence once duty was held not payable. The confiscation and penalty were therefore set aside in favour of the assessee.

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Issues: Whether confiscation of polyethylene films and penalty under Rule 173Q were sustainable when the goods were held exempt from duty under Notification No. 208/84 issued under Section 11C.

Analysis: The duty demand for the relevant period was treated as covered by the exemption notification issued on the basis of a general practice of non-payment of duty. Once duty was found not payable, the premise of evasion disappeared. In the absence of duty evasion, there was no foundation for confiscation or for imposition of penalty, and no independent reason was recorded to sustain either consequence.

Conclusion: The confiscation and penalty were not sustainable and were set aside in favour of the assessee.

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