Exemption for stentered cotton fabrics barred excise duty, leaving the related demand and penalty without legal basis.

Cotton fabrics subjected to the finishing process of stentering were covered by Notification No. 80/76-C.E., which exempted such fabrics from central excise duty when they fell within Item 19I(2). The text states that the processed goods matched the notified description, so the exemption applied from the date of the notification and no duty was leviable on those fabrics. As the duty liability failed, the consequential demand and penalty under the Central Excise Rules, 1944 had no basis and could not survive.

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Issues: Whether cotton fabrics subjected to the finishing process of stentering were exempt from central excise duty under Notification No. 80/76-C.E. dated 16-3-1976, and whether the duty demand and penalty imposed under the Central Excise Rules, 1944 could survive.

Analysis: The notification exempted cotton fabrics falling under Item 19I(2) of the First Schedule to the Central Excises and Salt Act, 1944 when subjected to the finishing process of stentering. The record showed that the appellant processed cotton fabrics by stentering and that the goods fell within the notified description. Once the exemption applied, no central excise duty was leviable on the processed fabrics from the date of the notification, and the foundation for the demand of duty and consequential penalty disappeared.

Conclusion: The exemption was applicable, and the demand of duty and the penalty were unsustainable.

Ratio Decidendi: Where processed cotton fabrics fall within the description covered by an exemption notification for stentering, central excise duty is not leviable and any demand or penalty based on such non-leviability cannot stand.

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