EOU customs exemption denied where generator set was used mainly to sell electricity, not produce export goods.
Duty-free import of capital goods by a 100% export-oriented unit was denied where the imported generator set was used mainly to produce electricity for sale in the Domestic Tariff Area, not for captive manufacture of export goods. On those facts, the customs exemption conditions were not satisfied, and the duty demands were sustained. Confiscation of the imported capital goods was also upheld because the import breached the notification requirements. The tribunal, however, treated the development authority's knowledge and consent as mitigating factors, so the redemption fine was reduced and some penalties were set aside or reduced, including the separate penalty on the executive director.
Issues: (i) Whether duty exemption under the customs notifications was available for a generator set imported by a 100% export-oriented unit when the electricity generated was substantially sold in the Domestic Tariff Area and not used for captive production of export goods; (ii) Whether the confiscation, penalties and redemption fine required interference.
Issue (i): Whether duty exemption under the customs notifications was available for a generator set imported by a 100% export-oriented unit when the electricity generated was substantially sold in the Domestic Tariff Area and not used for captive production of export goods.
Analysis: The exemption notifications permitted duty-free import of capital goods only for use in the manufacture of export goods or in connection with their production, packaging or job work for export. The imported turbine-generator was not shown to have been brought in for captive use in the unit's plants. The admitted position was that more than 99% of the electricity generated was sold to the State Electricity Board, and the contemporaneous correspondence with the Development Commissioner showed that the additional steam was intended to be converted into electricity for sale. On these facts, the generator set was not used for the exempt purpose contemplated by the notifications.
Conclusion: The denial of exemption and confirmation of customs duty and central excise duty were sustained against the assessee.
Issue (ii): Whether the confiscation, penalties and redemption fine required interference.
Analysis: Since the import was found to be in breach of the notification conditions, confiscation of the imported capital goods was justified. However, the circumstances that the import had been made with the knowledge and consent of the Development Commissioner were treated as mitigating factors for the quantum of penalty and fine. The separate penalties imposed on the co-appellant and on the executive director were found unsustainable on the facts, and the earlier penalty amounts were reduced or set aside accordingly.
Conclusion: Confiscation was upheld, the redemption fine was reduced, the penalties were partly reduced and partly set aside, and the separate penalty on the executive director was set aside.
Final Conclusion: The appeals succeeded only to a limited extent on the quantum of penalty and fine, while the duty demands and confiscation were maintained.
Ratio Decidendi: An exemption for import of capital goods by a 100% export-oriented unit is unavailable where the goods are imported and used primarily for generating electricity for sale in the Domestic Tariff Area rather than for production of export goods, though the surrounding circumstances may justify reduction in penal consequences.