EOU DTA clearances require authorised permission; clandestine removals face customs-based valuation and penalty, with no prejudice from wrong rule citation.

For a 100% export-oriented undertaking, the proviso to Section 3(1) of the Central Excise Act, 1944 applies only to authorised domestic clearances contemplated by the export policy and the relevant rules; clandestine diversion into the domestic tariff area is not treated as a lawful sale in India. In such cases, duty is assessed under the proviso on a customs-based valuation framework, including contemporaneous import data, rather than under the main charging provision. The article also notes that cum-duty treatment is unavailable where the assessee had no basis to assume duty-free clearance, depreciation on capital goods depends on lawful permission, and a wrong citation of the penalty rule does not invalidate confiscation or penalty absent prejudice.

---

---

Issues: (i) whether goods cleared by a 100% export-oriented undertaking into the domestic tariff area without permission and in breach of the export policy attracted duty under the proviso to Section 3(1) of the Central Excise Act, 1944 and not under the main charging provision; (ii) whether the goods and capital goods were correctly valued and whether the clearance price could be treated as cum-duty price or the depreciated value could be adopted; and (iii) whether confiscation and penalty could be sustained despite wrong mention of Rule 173Q instead of Rule 209 in the proceedings.

Issue (i): whether goods cleared by a 100% export-oriented undertaking into the domestic tariff area without permission and in breach of the export policy attracted duty under the proviso to Section 3(1) of the Central Excise Act, 1944 and not under the main charging provision.

Analysis: The proviso to Section 3(1) applies to goods manufactured by a 100% export-oriented undertaking and allowed to be sold in India. That expression must be read with the export policy and Chapter VA of the Central Excise Rules, 1944. Where no permission is sought or granted for domestic sale, and the goods are clandestinely diverted to the domestic tariff area in violation of the scheme, the clearances cannot be treated as goods lawfully allowed to be sold in India. The scheme of exemption and the special valuation mechanism are meant for authorised domestic clearances, not for unauthorised diversion or clandestine removal.

Conclusion: The duty demand was correctly raised under the proviso to Section 3(1), and the appellant's contention that only the main charging provision applied was rejected.

Issue (ii): whether the goods and capital goods were correctly valued and whether the clearance price could be treated as cum-duty price or the depreciated value could be adopted.

Analysis: Under the proviso to Section 3(1), valuation has to be made on the basis of the customs law framework and the value of like imported goods. The price realised on clandestine DTA sales cannot be treated as cum-duty price when the assessee itself proceeded on the footing that no duty was payable. Likewise, depreciation on capital goods can arise only where removal is lawfully permitted by the competent authority under the relevant notification. In the absence of such permission, the concession based on depreciated value was unavailable. The departmental valuation based on contemporaneous import data and supporting material was upheld.

Conclusion: The valuation adopted by the department was sustained, the cum-duty plea failed, and depreciation on capital goods was rightly denied.

Issue (iii): whether confiscation and penalty could be sustained despite wrong mention of Rule 173Q instead of Rule 209 in the proceedings.

Analysis: The material facts attracting confiscation and penalty were clearly alleged and understood, and the relevant misconduct fell within the substance of the penal provisions applicable to breaches in Chapter VA. A mere wrong mention of the rule number did not cause prejudice where the ingredients of contravention, confiscation, and penalty were otherwise made out. The proceedings were upheld on the basis of substance over form.

Conclusion: Confiscation and penalty were validly sustained notwithstanding the erroneous reference to Rule 173Q.

Final Conclusion: The challenges to duty demand, valuation, confiscation, and penalty all failed, and the impugned order was upheld in full.

Ratio Decidendi: For a 100% export-oriented undertaking, the proviso to Section 3(1) of the Central Excise Act, 1944 applies only to authorised domestic clearances contemplated by the export policy and the relevant rules; clandestine or unauthorised DTA removals are to be assessed under that proviso on customs-based valuation, and a mere wrong citation of the penalty rule does not invalidate proceedings absent prejudice.

---