Deemed export treatment for EOU waste may count toward quota, but duty exemption turns on the raw material's origin.

Supplies from a 100% export oriented unit arising as waste were treated as capable of being counted as deemed exports for domestic tariff area quota computation under the export policy. However, exemption from duty on such waste depended on the proven source of the raw material: if indigenous, the exemption notifications could apply; if imported, customs duty liability had to be examined separately. Because the origin of the raw material was not conclusively established, the connected issues of shortages, duty and penalty required fresh adjudication on a de novo basis.

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Issues: (i) Whether clearances of waste arising in a 100% export oriented unit could be reckoned as deemed exports and counted towards domestic tariff area entitlement under the relevant export policy. (ii) Whether exemption and duty liability on the waste and shortages depended on whether the raw material from which the waste arose was indigenous or imported, and whether the matter required fresh verification.

Issue (i): Whether clearances of waste arising in a 100% export oriented unit could be reckoned as deemed exports and counted towards domestic tariff area entitlement under the relevant export policy.

Analysis: Supplies made under the policy provision governing EOU supplies were held distinguishable from ordinary domestic tariff area sales. The policy framework permitted such supplies to be taken into account for computing the permissible domestic tariff area quota, and the tribunal declined to follow decisions that had not addressed those policy stipulations. The benefit of deemed export treatment was therefore accepted in principle for the purpose of quota computation.

Conclusion: The appellant succeeded on this issue in principle, and the supplies were held capable of being reckoned for the relevant quota calculations.

Issue (ii): Whether exemption and duty liability on the waste and shortages depended on whether the raw material from which the waste arose was indigenous or imported, and whether the matter required fresh verification.

Analysis: The tribunal held that entitlement to exemption under the notifications depended on the source of the raw material. If the waste arose from indigenous raw material, the exemption notifications could apply; if it arose wholly or partly from imported material, the applicability of the alternative notification and any customs duty liability had to be examined separately. Because the source of the raw material had not been conclusively determined, the existing orders could not be sustained on merits and the factual position required fresh adjudication. The question of shortages, accounting, duty and penalty was also left for reconsideration in the same de novo exercise.

Conclusion: The matter was remanded for de novo decision after verification of the source of raw material and reconsideration of the connected duty and penalty issues.

Final Conclusion: The appeals were allowed to the extent of setting aside the impugned orders and sending the matters back for fresh adjudication, while accepting the legal position on deemed export treatment in principle.

Ratio Decidendi: Supplies from a 100% export oriented unit may be reckoned under the export policy for domestic tariff area quota purposes, but exemption from duty on waste depends on the proven origin of the raw material from which the waste arose.

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