Exemption benefit not denied on unsupported trading inference or procedural lapse; duty demand and penalty fail.

Exemption benefit could not be denied merely on an unsupported inference of trading or on procedural non-compliance with Notification No. 214/86 and Rule 57F(3) where the show cause notice did not allege sale and the record did not establish a disqualifying clearance pattern. The goods were shown to be manufactured for brand-name original equipment manufacturers, and some were directly supplied to them; movement through processors for machining, without proof-machining facilities with the assessee, did not by itself defeat the exemption. As the duty demands were not sustainable, the consequential penalty also failed.

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Issues: Whether the assessee was disentitled to the exemption benefit on the ground that the branded castings were cleared in violation of the procedural requirements relating to Notification No. 214/86 and Rule 57F(3), and whether duty demand and penalty were sustainable.

Analysis: The demand in one appeal rested only on an alleged procedural lapse, while the notice did not allege any sale of the castings. The finding that the goods were liable to duty was not supported by reasons showing why the exemption under Notification No. 87/94 and the Board's instructions would be unavailable. In the other appeal, there was no charge or evidence in the show cause notice of sale to the alleged customers, and the record did not justify a finding of trade in the castings. The fact that some goods moved through processors for machining, where proof-machining facilities were not available with the assessee, did not justify denial of the exemption benefit when the goods were otherwise manufactured for brand-name original equipment manufacturers and some were directly supplied to them. As the duty demands were not sustained, the consequential penalty also could not survive.

Conclusion: The assessee was entitled to the exemption benefit, and the duty demands and penalty were not sustainable.

Final Conclusion: The impugned order was set aside and both appeals succeeded.

Ratio Decidendi: Exemption benefit cannot be denied, and consequent duty or penalty cannot be sustained, merely on an unsupported inference of trading or on procedural non-compliance where the notice and record do not establish a disqualifying clearance pattern.

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