Rule 57CC demand fails where exempted goods were not sold and the sale-based mechanism could not operate

Rule 57CC(1), which requires payment calculated as 8% of the sale price of exempted goods, could not be applied where the exempted final product was not sold and no sale price existed. The Tribunal accepted the assessee's explanation that the inputs were separately inventoried and accounted for, and held that the statutory mechanism could not operate on those facts. The objection based on Rule 57CC(9) was rejected, and the penalties on the assessee and its General Manager were also held unsustainable because the demand itself failed.

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Issues: Whether the demand under Rule 57CC(1) could be sustained where the exempted final product was not sold and the inputs were claimed to have been separately inventoried and accounted for, and whether the penalties imposed on the assessee and its General Manager were sustainable.

Analysis: Rule 57CC(1) requires payment of 8% of the price charged on sale of exempted goods and is intended to operate where such sale price exists. The Tribunal relied on the principle that where the exempted final product is not sold, the rule cannot be effectively applied. The objection based on Rule 57CC(9) was not accepted, as the Tribunal found the assessee's explanation regarding separate inventory to be sufficient for the present controversy and noted that the Commissioner had not dealt with the decisive point.

Conclusion: The demand under Rule 57CC(1) was not sustainable, and the penalties were also not sustainable.

Final Conclusion: The appeal succeeded and the impugned order was set aside.

Ratio Decidendi: A provision requiring payment as a percentage of the sale price of exempted goods cannot be applied where the exempted goods are not sold and the statutory mechanism cannot operate on the facts of the case.

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