EOU clearances into DTA: no separate manufacturing line is required where batch-wise segregation and input records are verified.

For clearances by a 100% EOU into the Domestic Tariff Area under Notification No. 8/97-C.E., the applicable circulars did not require a separate manufacturing line, separate machinery, or a separate factory within the factory. The operative requirement was batch-wise segregation supported by proper records and verification of the separate use of indigenous and imported inputs. Claims for benefit under Notification No. 2/95 and objections to penalty under Rule 173Q also required fresh factual and legal examination where the records and input utilisation were being reconsidered. The matter therefore turned on verification of records and input accounting, not on insistence on a separate production line.

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Issues: (i) Whether clearance of goods manufactured in a 100% EOU to the Domestic Tariff Area under Notification No. 8/97-C.E. required a separate manufacturing line or separate machinery, or only batch-wise segregation and records of indigenous and imported inputs; (ii) whether the impugned order could stand without examining the appellant's claim to the benefit of Notification No. 2/95 and the objection to penalty under Rule 173Q of the Central Excise Rules.

Issue (i): Whether clearance of goods manufactured in a 100% EOU to the Domestic Tariff Area under Notification No. 8/97-C.E. required a separate manufacturing line or separate machinery, or only batch-wise segregation and records of indigenous and imported inputs.

Analysis: The governing circulars clarified that there was no requirement to establish a separate manufacturing line, separate machinery, or a separate factory within the factory. The authority was required to verify whether indigenous and imported raw materials were used separately and accounted for batch-wise, on the basis of proper records and verification. The impugned order proceeded on an erroneous understanding of these circulars and did not properly apply the later clarification.

Conclusion: The requirement of a separate manufacturing line was not sustainable, and the matter had to be examined on the basis of batch-wise records and utilisation of inputs.

Issue (ii): Whether the impugned order could stand without examining the appellant's claim to the benefit of Notification No. 2/95 and the objection to penalty under Rule 173Q of the Central Excise Rules.

Analysis: The appellant's contention regarding the duty benefit under Notification No. 2/95 and the challenge to penalty under Rule 173Q raised issues requiring factual and legal examination at the stage of verification. Since the matter was being sent back for reconsideration of the records and the mode of utilisation of inputs, these connected claims also required fresh adjudication.

Conclusion: These issues were left for reconsideration in de novo proceedings.

Final Conclusion: The order was set aside and the dispute was sent back for fresh adjudication after verification of the records and the manner in which the inputs were used and accounted for.

Ratio Decidendi: For exemption-linked clearances by a 100% EOU, authorities cannot insist on a separate manufacturing line when the applicable circulars require only batch-wise segregation, records, and verification of separate use of indigenous and imported inputs.

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