Substantive exemption under Notification No. 214/86 cannot be denied for a limited procedural lapse.

Notification No. 214/86 was available where goods were manufactured from customer-supplied raw materials and returned to the supplier, and a limited procedural departure did not defeat the exemption. The record did not show that the leather was not received by the assessee or that the shoe uppers were not returned to the supplier. Any lapse was only procedural, so the benefit could not be denied merely because the assessee followed an incorrect procedural route for a short period. The demand was therefore unsustainable.

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Issues: Whether the assessee was entitled to the benefit of Notification No. 214/86 despite following Rule 173N procedure for a short period and whether any lapse in procedure could justify denial of exemption.

Analysis: The exemption under Notification No. 214/86 was available where goods were manufactured from raw materials supplied by the customer and the manufactured goods were returned to the supplier. The record did not show that the leather was not received by the assessee or that the shoe uppers were not returned to the supplier. The departure, if any, was only in the nature of a procedural lapse. A substantive exemption could not be denied merely because the assessee, for a limited period, followed an incorrect procedural route.

Conclusion: The assessee was entitled to the benefit of Notification No. 214/86 and the demand was unsustainable.

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