Exempt goods and bona fide procedural lapse cannot by themselves justify duty liability where ancillary outside operations were permitted.

Goods classifiable under heading 8707 were treated as covered by Notification No. 175/86-C.E., and the alleged procedural lapse in sending semi-finished bodies for outside operations was held immaterial. The unit held a licence, so the alleged contravention of Rule 174 could not be sustained. The outside work was within the scope of the trade notice and the contemplated permission for minor ancillary operations, supporting a bona fide belief and negating any inference of duty evasion. The procedural objection was therefore rejected and the impugned order was set aside.

---

---

Issues: Whether the alleged procedural non-compliance in removal of semi-finished bodies for outside operations, including applicability of Rule 56B and the alleged contravention of Rule 174, warranted denial of exemption and duty liability.

Analysis: The goods were treated as classifiable under heading 8707 and covered by the exemption under Notification No. 175/86-C.E. dated 01-03-1986. In that setting, any procedural lapse was held to be of no material significance. The record also showed that the unit held a licence, so the alleged contravention of Rule 174 could not be sustained. The outside operations were regarded as falling within the scope of the trade notice and the permission contemplated for minor operations such as wiring and similar ancillary work, supporting a bona fide belief and negating any inference of duty evasion.

Conclusion: The procedural objection was rejected and the appeal was allowed.

Final Conclusion: The impugned order was set aside because the dispute disclosed, at most, a minor procedural lapse without any intention to evade duty, in the context of an exempt and licenced activity.

Ratio Decidendi: Where goods are exempt and the assessee acts under a bona fide understanding supported by the applicable trade permission, a minor procedural irregularity by itself does not justify fastening duty liability or alleging evasion.

---