Exemption denial and supplier demand fail where notice is vague and breach of end-use conditions lies with the beneficiary unit.

Denial of exemption on office furniture and allied items supplied to a 100% Export Oriented Unit was unsustainable because the show cause notice did not clearly state the basis on which the goods were treated as ineligible; a demand cannot rest on a ground first introduced in the adjudication order. Duty also could not be fastened on the manufacturer-supplier who cleared the goods against a valid CT-3 certificate, because the notification's end-use obligation lay on the beneficiary user unit. Where any breach concerned the user's compliance with the exemption condition, action lay against the beneficiary unit, not the supplier.

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Issues: (i) Whether the denial of exemption on office furniture and allied items supplied to a 100% Export Oriented Unit under the relevant exemption notifications was sustainable when the show cause notice did not specifically spell out the basis for treating the goods as ineligible. (ii) Whether duty demand for alleged breach of the notification condition could be fastened on the manufacturer-supplier who cleared the goods against a valid CT-3 certificate, or only on the beneficiary user unit.

Issue (i): Whether the denial of exemption on office furniture and allied items supplied to a 100% Export Oriented Unit under the relevant exemption notifications was sustainable when the show cause notice did not specifically spell out the basis for treating the goods as ineligible.

Analysis: The show cause notice alleged contravention of the notification condition in broad terms, but did not set out how the disputed goods failed to satisfy the requirement. The specific reasoning that office equipment could not include items such as storage units, partition panels, tables and chairs was introduced only in the adjudication order. A demand cannot be sustained on a ground not made clear in the notice so as to enable effective reply.

Conclusion: The denial of exemption on this ground was not sustainable and was bad in law.

Issue (ii): Whether duty demand for alleged breach of the notification condition could be fastened on the manufacturer-supplier who cleared the goods against a valid CT-3 certificate, or only on the beneficiary user unit.

Analysis: The goods were supplied against the prescribed CT-3 certificate under the notification. The exemption scheme placed the obligation on the beneficiary Export Oriented Unit to use the goods in the manner contemplated by the notification. The reasoning followed the earlier view that, where the concession is availed by the buyer-user and the condition is breached by the user, the proper course is to proceed against the beneficiary of the exemption and not the supplier who cleared the goods under valid documents.

Conclusion: Duty could not be demanded from the manufacturer-supplier; if there was any breach, action lay against the beneficiary user unit.

Final Conclusion: The impugned order was unsustainable and was set aside, with consequential relief granted to the assessee.

Ratio Decidendi: Where goods are cleared to a beneficiary unit under a valid exemption certificate and the alleged breach concerns the end-use condition of the notification, the demand cannot be fastened on the supplier unless the show cause notice specifically and clearly alleges the basis of ineligibility.

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