Permitted clearance of waste and rejects from an export unit cannot support duty, confiscation or penalty without proof of clandestine removal.

Removal of scrap and waste from an export oriented unit, when made with permission and under customs supervision, was treated as lawful clearance rather than clandestine removal of finished goods. The record showed that the goods found at another premises were smaller in dimension and were not proved to be manufactured in the appellant's factory; in the absence of a tariff definition of waste or rejects for granite, the expression was read in trade parlance. Because the seized goods were not established to be the same goods allegedly cleared from the unit, no central excise duty could be fastened on the appellant, and the consequential confiscation and penalties also failed.

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Issues: (i) Whether the goods cleared from the export oriented unit were waste/rejects removed under permission or were clandestinely removed finished goods liable to duty. (ii) Whether the demand of duty, confiscation and penalties could be sustained against the appellant.

Issue (i): Whether the goods cleared from the export oriented unit were waste/rejects removed under permission or were clandestinely removed finished goods liable to duty.

Analysis: The material on record, including the earlier customs findings, showed that the goods found at the other unit were of smaller dimensions and could not have been manufactured in the appellant's factory. The record also showed that scrap and waste had been cleared with permission and under customs supervision. In the absence of any tariff definition of waste/rejects for granite, the expression had to be understood in the trade sense, and the evidence did not support the conclusion that finished goods had been misdeclared as waste.

Conclusion: The clearance was treated as removal of waste/rejects and not as clandestine removal of dutiable finished goods.

Issue (ii): Whether the demand of duty, confiscation and penalties could be sustained against the appellant.

Analysis: Once the goods seized at the other premises were not shown to be goods clandestinely removed from the appellant's factory, no central excise duty could be fastened on the appellant. The other unit was a separate legal entity and any processing there, if dutiable at all, could not automatically be attributed to the appellant. In the absence of a sustainable duty demand, the consequential confiscation and penalty provisions also could not stand.

Conclusion: The demand of duty, confiscation and penalties were set aside.

Final Conclusion: The appeals succeeded and the impugned order was annulled in full.

Ratio Decidendi: Where removal of materials from an export oriented unit is shown to have been effected under permission and under customs supervision, and the seized goods are not established to be the same goods clandestinely cleared from that unit, duty demand and consequential confiscation or penalty cannot be sustained.

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