Procedural lapse cannot defeat exemption where substantive conditions are met and actual end-use is later verified.

Exemption under Notification No. 167/79 could not be denied solely for non-observance of Chapter X procedure where the goods were otherwise eligible and the lapse was not shown to be deliberate or mala fide. The governing principle is that a procedural defect should not defeat a substantive notification benefit if the assessee later demonstrates that the essential conditions were met and actual end-use is verified. On the stated facts, single-purchaser supply for further manufacture and post facto compliance supported relief, and the benefit was to be extended upon proof of substantial compliance and use in the buyer's factory.

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Issues: Whether exemption could be denied merely because Chapter X procedure was not followed, when the goods were otherwise eligible for the notification and the lapse was not shown to be deliberate or mala fide.

Analysis: The denial of exemption rested on non-observance of Chapter X procedure, but the record showed that the goods were supplied only to one purchaser for further manufacture and that the department had itself contributed to the delay in final classification. The governing principle applied was that a procedural lapse should not defeat a substantive statutory benefit if the assessee can later satisfy the department that the essential conditions of the notification were met. The facts also indicated absence of mala fide and supported the claim of eventual verification of actual end-use.

Conclusion: The exemption could not be refused solely for failure to follow Chapter X procedure. The department was directed to extend the benefit of Notification No. 167/79 on the appellants proving post facto substantial compliance and actual use of the goods in the buyer's factory.

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