DTA clearance entitlement under export policy cannot be denied where competent authority permissions are valid and excess clearance is unproven.

Under the Export-Import Policy, 1997-2002, a 100% EOU may make DTA sales within the entitlement granted by the competent authority, and the Revenue cannot ignore valid permissions or recast the limit on a different basis unless excess clearance is shown on record. The note states that clearances of finished goods made under Development Commissioner permissions could not be denied duty-free treatment merely by reworking the entitlement, because those permissions had not been reviewed or proved exceeded. It also states that reject sales are governed by the policy and Handbook provisions, and only sales beyond the permitted 5% FOB limit count against DTA entitlement. On the facts recorded, no excess reject clearance was established, so duty and penalties were not sustainable.

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Issues: Whether the Revenue could deny DTA clearance entitlement and demand central excise duty where the assessee, a 100% EOU, effected DTA clearances of finished goods and rejects pursuant to permissions granted by the Development Commissioner; and whether sale of rejects had to be included beyond the 5% limit without evidence of excess clearance.

Analysis: Para 9.9(b) of the Export-Import Policy, 1997-2002 permits DTA sales up to 50% of FOB value of exports subject to duty payment and fulfilment of NFEP conditions. The assessee cleared goods under permissions granted by the Development Commissioner, and those permissions had not been reviewed or shown to be exceeded. In these circumstances, the Revenue could not ignore the competent authority's permission and rework entitlement on the basis that it should have been restricted only to physical exports. The clarification issued by the Development Commissioner also supported the position that past permissions were not being reviewed. As regards rejects, Para 9.9(a) of the Export-Import Policy, 1997-2002 and Para 9.30(a) of the Handbook of Procedures, 1997-2002 permit sale of rejects on the basis of records maintained by the unit, and only sales above 5% of FOB value are to be counted against DTA entitlement. The record did not show any excess reject clearance beyond that limit.

Conclusion: The duty demand and penalties could not be sustained, because the clearances were made under valid permissions and no excess reject clearance was established.

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

Ratio Decidendi: Where DTA clearances are made within permissions granted by the competent authority under the export policy, the Revenue cannot reclassify those clearances or demand duty by substituting its own interpretation of the entitlement limit unless excess clearance beyond the permitted limit is established on record.

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