Project exemption under Notification 108/95-C.E. cannot be denied merely because goods were routed through contractors or sub-contractors.

Notification No. 108/95-C.E. was construed to allow exemption for excisable goods supplied for a Government-approved project financed by an international organisation, even where the supply was routed through contractors or sub-contractors rather than made directly to the project authority. The exemption did not require direct payment by the financing organisation or exclusive supply to the implementing authority. Where the goods were in fact used for the project and there was no evidence of diversion to other use, denial of the exemption was unwarranted and the related duty demand and penalty were unsustainable.

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Issues: Whether the benefit of Notification No. 108/95-C.E. was admissible where excisable goods were supplied to contractors/sub-contractors for use in a project financed by an international organisation, and not directly to the project implementing authority.

Analysis: The notification exempted goods supplied to projects financed by the United Nations or an international organisation and approved by the Government of India, subject to production of the prescribed certificates. The goods in question were admittedly used for the Golden Quadrilateral Project financed by the Asian Development Bank. The notification did not require direct payment by the financing organisation, nor did it require that the goods be supplied only to the project implementing authority. Since the goods were used for the project and there was no evidence of diversion to any other use, the fact that the sub-contractors retained the goods after completion of the project did not justify denial of the exemption. The demand and penalty were therefore unsustainable.

Conclusion: The exemption was admissible to the goods cleared by the appellants, and the duty demand and penalty were set aside in favour of the assessee.

Ratio Decidendi: Where goods are supplied for and used in a Government-approved project financed by an international organisation, exemption cannot be denied merely because the supply is made through contractors or sub-contractors instead of directly to the project authority, absent any stipulation of direct payment or diversion to non-project use.

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