Duty on rejects and waste from a 100% export oriented unit was treated as prima facie confined to tariff rate, with recovery stayed.

Notification No. 2/95 and the duty provisions were analysed in relation to rejects and waste cleared from a 100% export oriented unit. The commentary notes that, where the goods were not permitted to be sold in India, there was prima facie support for the view that the proviso to section 3(1) of the Central Excise Act would not apply. It also records that the cited precedent did not prima facie govern the facts, and that any duty, if payable, would be confined to the tariff rate rather than the aggregate of customs duties. On that basis, pre-deposit of duty and penalty was waived and recovery stayed.

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Issues: Whether the applicant was required to make pre-deposit of the demanded duty and penalty in respect of clearances of rejects and waste from a 100% export oriented unit, and whether the duty demand was prima facie sustainable under the cited exemption and duty provisions.

Analysis: The dispute turned on the effect of Notification No. 2/95, the argument that the goods were not physically exported but only treated as deemed exports, and the rival contention that duty, if any, would be confined to the tariff rate rather than the aggregate of customs duties. The Tribunal found prima facie support for the view that, where the goods were not permitted to be sold in India, the proviso to Section 3(1) of the Central Excise Act would not apply. It also noted that the cited precedent did not prima facie govern the facts before it.

Outcome: Pre-deposit of duty and penalty was waived and recovery was stayed.

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