Exemption under Notification No. 203/92-Cus. cannot be denied on undisclosed material or for lack of physical incorporation.

CEGAT, Calcutta held that exemption under Notification No. 203/92-Cus. could not be denied on undisclosed market-enquiry material or on new grounds not set out in the show cause notice. The department was bound by the original case and the earlier remand direction requiring disclosure of the material relied on. The Tribunal also held that Explanation (iii) did not require physical incorporation of the imported goods in the export product; it was enough that the goods were commercially usable for that purpose. The denial of the exemption was therefore unsustainable, and the notification benefit was admissible.

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Issues: Whether the benefit of Notification No. 203/92-Cus. could be denied on the basis of un-disclosed materials and later reliance on new grounds, and whether the imported goods were required to be physically incorporated in the export product or only capable of being used therein.

Analysis: The Revenue's original case rested on a market enquiry, and the earlier remand required disclosure of that material so the importer could meet the case against it. The impugned order did not comply with that direction and instead relied on the appellants' letters and on the alleged non-use of the imported goods in the export product. The Tribunal held that the department could not improve its case beyond the basis set out in the show cause notice and that the clarification relied upon showed that Explanation (iii) did not require physical incorporation of the imported goods in the export product, only that the goods be of a kind commercially usable for that purpose.

Conclusion: The denial of the exemption was not sustainable, and the benefit of Notification No. 203/92-Cus. was held admissible to the appellants.

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