Exemption for sister-unit supplies and penalty relief followed where the units were treated as one legal entity and records were filed.

Nitrogen gas supplied to a sister unit was held eligible for exemption under Notification No. 40/85 as amended because the units were treated as one corporate or legal entity, so denial based on separate identity could not stand. The Tribunal also found the penalty unsustainable because the record showed filing of the classification list, RT-12 returns and price lists, rebutting allegations of non-filing of statutory documents. The duty demand and penalty were therefore set aside, and the assessee obtained consequential relief according to law.

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Issues: (i) Whether nitrogen gas supplied to a sister unit was entitled to exemption under the relevant notifications. (ii) Whether the penalty imposed for alleged non-compliance with statutory requirements was sustainable.

Issue (i): Whether nitrogen gas supplied to a sister unit was entitled to exemption under the relevant notifications.

Analysis: The exemption was denied on the footing that the gas was captively consumed only within the factory of production. The Tribunal noted that its earlier order had treated the manufacturing divisions as one corporate/legal entity and not as separate entities. On that basis, the ground adopted by the Department for denying the exemption was no longer available.

Conclusion: The appellants were entitled to the benefit of Notification No. 40/85 as amended, and this issue was decided in favour of the assessee.

Issue (ii): Whether the penalty imposed for alleged non-compliance with statutory requirements was sustainable.

Analysis: The record showed filing of the classification list from 1-3-1986, regular filing of RT-12 returns, and filing of price lists for the relevant period. In view of these materials, the findings of non-filing of statutory documents and returns were not sustainable, and the basis for penalty disappeared.

Conclusion: The penalty under the Central Excise Rules was not sustainable and was set aside, in favour of the assessee.

Final Conclusion: The duty demand and penalty were set aside and the appeal was allowed with consequential relief according to law.

Ratio Decidendi: Where the units concerned are treated as one corporate/legal entity, exemption denial on the premise of separate identity cannot stand; consequential penalty based on alleged non-compliance also fails when the statutory records were in fact filed.

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