Excise duty on 100% EOU clearances, not customs duty, so interest and penalties under Customs Act failed.

Removals of goods from a 100% Export Oriented Unit were treated as excise duty in substance, even though customs law was used for quantification. Applying the binding Larger Bench view in Vikram Ispat, the levy was held not to be customs duty under the Customs Act, 1962. As the customs-based demand could not be sustained, the consequential interest and penalties imposed under the same Act also failed. The demand and penalties were therefore set aside.

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Issues: Whether goods cleared from a 100% Export Oriented Unit attracted customs duty and penalties under the Customs Act, 1962, or whether the levy was in substance excise duty.

Analysis: The dispute concerned the character of the duty on removals from a 100% EOU. The binding Larger Bench view in Vikram Ispat was applied to hold that the nature of the levy is excise duty, and that the use of customs law as the measure for quantification does not alter the character of the levy. Once the duty demand under the Customs Act could not be sustained, the consequential interest and penalties imposed under the same Act also could not stand.

Conclusion: The duty demand and consequential penalties under the Customs Act, 1962 were set aside and the appeal was allowed.

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