Export-linked clearances without duty are not exempted goods, so Rule 57C cannot deny relief on intermediate products.

Clearances of nylon yarn without payment of duty under Rule 191BB, for use in the manufacture and export of nylon tyre cord fabrics, were not treated as exempted goods merely because no duty was paid. The Tribunal accepted that Rule 57C did not apply where the removal was export-linked and made under a procedure intended to facilitate export, since such goods were not equivalent to goods exempted from the whole of duty or chargeable at nil rate. It also noted that the intermediate duty would in any event be rebate-eligible and that the arrangement was revenue neutral. On that basis, the duty demand on the intermediate nylon yarn was held unsustainable.

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Issues: Whether nylon yarn captively consumed in the manufacture of nylon tyre cord fabrics, which were cleared without payment of duty under Rule 191BB and ultimately exported, could be subjected to duty demand on the footing that the clearances amounted to exempted goods and attracted Rule 57C.

Analysis: The Tribunal held that clearances made without payment of duty under Rule 191BB are not to be treated as clearances of exempted goods merely because the goods move without duty. It noted that the legal position on Rule 57C had already been settled by earlier Tribunal decisions and the Board's circular, which recognised that goods exported in bond or removed without payment of duty under a notification are not equivalent to goods exempted from the whole of duty or chargeable to nil rate. The Tribunal also accepted that the procedure under Rule 191BB was intended to facilitate export, that duty on the intermediate yarn would in any event be rebate-eligible, and that the situation was revenue neutral. In these circumstances, the demand confirmed on the intermediate nylon yarn could not be sustained.

Conclusion: The duty demand on the intermediate nylon yarn was not sustainable and the appeal was allowed in favour of the assessee.

Ratio Decidendi: Removal of goods without payment of duty under an export-linked notification or Rule 191BB is not the same as exemption from duty, and Rule 57C cannot be invoked to deny relief on intermediate products used in such export-oriented clearances.

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