Third-party supply exemption for Indian Navy stores denied, but penalty refused in an interpretive dispute

Exemption under Notification No. 64/95-C.E. was confined to goods supplied as stores for consumption on board an Indian Navy vessel, so excisable goods routed through third parties such as shipbuilders were treated as outside the notification. Earlier decisions on similar third-party supplies were applied, and a new plea based on direct supply to the Navy was not entertained because it had not been raised before the lower authorities. The duty demand was therefore upheld. On penalty, the dispute turned on interpretation of the notification and the facts did not justify penal action, so no penalty was imposed.

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Issues: (i) Whether excisable goods supplied to parties other than the Indian Navy, though intended for use on board Navy vessels, were eligible for exemption under Notification No. 64/95-C.E.; (ii) whether penalty was imposable on the assessee.

Issue (i): The exemption under Notification No. 64/95-C.E. was confined to goods supplied as stores for consumption on board a vessel of the Indian Navy. The goods in question were not supplied directly to the Indian Navy but were routed through third parties such as shipbuilders. The earlier decisions holding that similar third-party supplies were outside the notification were treated as applicable, and the plea based on direct supply to the Navy was not entertained because it had not been raised before the lower authorities.

Conclusion: The exemption was not available and the demand of duty was upheld, in favour of Revenue.

Issue (ii): Penalty depended on the availability of the exemption and the nature of the dispute. As the controversy turned on interpretation of the notification and there was no fit case for penal action, penalty was declined.

Conclusion: No penalty was imposable, in favour of the assessee on this limited issue.

Final Conclusion: The appeal succeeded on the exemption issue, but the assessee was relieved from penalty.

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