Recovery demand on exempt clearances held unsustainable where CT-2 certificate removals were treated as fully exempt goods.

Demand of an amount equivalent to 8% of the value of clearances against CT-2 certificates was examined as a recovery of central excise duty under Rule 57H of the Central Excise Rules, 1944 read with Section 11A of the Central Excise Act, 1944. The legal issue was whether such removals could be treated as clearances of fully exempt final goods and whether the statutory recovery mechanism could validly support the demand. Even on that assumption, the demand was held not sustainable in law, and the assessee succeeded.

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Issues: Whether the demand of an amount equivalent to 8% of the value of fully exempt final goods was sustainable under Rule 57H of the Central Excise Rules, 1944 read with Section 11A of the Central Excise Act, 1944.

Analysis: The demand arose from clearances made against CT-2 certificates and was sought to be recovered as central excise duty. The dispute turned on whether such clearances could be treated as clearances of fully exempt goods and whether the recovery mechanism under Section 11A could validly be invoked for the amount demanded. On the facts assumed, even treating the removals as clearances of fully exempt goods, the demand was not supportable in law.

Conclusion: The demand was not sustainable and the assessee succeeded.

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