Conditional exemption and reduced penalty turn on proof that later duty payment matches the relevant clearances.

A conditional exemption under Notification No. 28/95 could not be refused merely because duty on the input yarn was paid belatedly, where later invoices and challan evidence suggested the payment related to the relevant clearances; the factual linkage required verification, so the matter was remanded for that limited purpose and the benefit was to follow if the condition was proved. An admitted compliance lapse justified retention of penalty, but only on a reduced basis, so the penalty was cut to a token amount and the balance was set aside.

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Issues: (i) whether the benefit of Notification No. 28/95 could be denied merely because duty on the input yarn was paid belatedly, and (ii) whether the penalty required interference.

Issue (i): whether the benefit of Notification No. 28/95 could be denied merely because duty on the input yarn was paid belatedly.

Analysis: The exemption was conditional upon the cord being made from yarn on which appropriate duty had been paid. The appellants had failed to pay duty at the exact time of manufacture of the cord, but the lapse was later corrected by payment of duty on the yarn. The earlier and later invoices and the challan indicated that the payment was referable to the relevant clearances, though this factual linkage required verification by the adjudicating authority.

Conclusion: The matter was remanded for limited verification of the duty-payment particulars, and the notification benefit was to be allowed if the linkage was established.

Issue (ii): whether the penalty required interference.

Analysis: Even though the exemption issue was left open for limited verification, there was an admitted lapse in compliance. The lapse did not justify complete deletion of penalty, but the amount called for reduction.

Conclusion: The penalty was reduced to a token amount and the rest of the penalty was set aside.

Final Conclusion: The decision granted limited relief to the assessee by preserving the opportunity to establish compliance with the notification conditions while substantially reducing the penalty, but the exemption question itself remained subject to remand verification.

Ratio Decidendi: A conditional exemption may not be denied where the underlying duty-payment requirement is capable of being substantiated by later evidence, but the factual nexus must be verified before granting the benefit, and an admitted procedural lapse may justify only a reduced penalty.

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