CT-2 certificate withdrawal cannot support duty demand on recipient unit when cancellation is arbitrary and procedurally unfair.

Duty demand on the recipient unit under CT-2 based procurement of packing materials under Notification No. 49/94-C.E. (N.T.) cannot be sustained where the certificates are withdrawn without proper verification of the supplier's eligibility and without observance of natural justice. The demand, being entirely dependent on that cancellation, falls when the withdrawal is arbitrary and unsupported by a lawful determination under the exemption procedure. Where goods are used for the intended export purpose, the recipient cannot be fastened with duty merely because the exemption mechanism was later questioned. The consequence is that liability must rest on a valid, procedurally fair decision under the governing notification.

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Issues: Whether the duty demand on the recipient unit could be sustained solely on the basis of withdrawal of CT-2 certificates issued for duty-free procurement of packing materials under Notification No. 49/94-C.E. (N.T.), and whether such withdrawal and the consequent demand were valid in the absence of verification of the supplying unit's eligibility and observance of natural justice.

Analysis: The appellant had exported the goods and had obtained CT-2 certificates for duty-free procurement of packing materials. The demand was founded on the Superintendent's later withdrawal of those certificates on the stated ground that the supplier did not satisfy the notification conditions. The record did not disclose any proper verification of the supplier's status before issuance or cancellation of the certificates. The cancellation was treated as arbitrary and effected without following natural justice. Since the duty demand depended entirely on that cancellation, and no independent basis for fastening liability on the recipient was shown, the demand could not stand. Support was also drawn from the principle that where inputs are used for the intended export purpose, the recipient unit cannot be burdened with duty merely because the exemption mechanism was later questioned.

Conclusion: The demand of duty on the recipient unit was not sustainable, and the appellant succeeded.

Final Conclusion: The impugned orders were unsustainable because the certificates were withdrawn without a lawful basis or fair procedure, and the consequent duty demand against the recipient unit was set aside.

Ratio Decidendi: A duty demand against the recipient of goods cleared under CT-2 certificates cannot be sustained where the cancellation of those certificates is arbitrary, unsupported by verification, and effected without observance of natural justice; liability, if any, must rest on a lawful determination under the governing exemption procedure.

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