Common facilities in partial EOU conversion can support exemption claims, while unsupported extended limitation makes demand time-barred.

A partially converted DTA unit operating as a 100% EOU may use common facilities for both DTA and EOU activities where the prescribed approval procedure is followed and the Development Commissioner has recognised the arrangement. On that footing, duty should not be demanded merely because DTA clearances were made from the same premises if the conversion and shared-facility use were duly approved and disclosed. The text also notes that, where the record does not support invocation of the extended period, the demand and penalty are treated as time-barred.

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Issues: (i) Whether duty demand was sustainable on clearances from the partially converted export oriented unit on the ground that common facilities were used for DTA and EOU operations. (ii) Whether the demand and penalty were barred by limitation.

Issue (i): Whether duty demand was sustainable on clearances from the partially converted export oriented unit on the ground that common facilities were used for DTA and EOU operations.

Analysis: The Board's circular governing partial conversion of a DTA unit into a 100% EOU permitted both units to function from the same or adjacent by using common facilities, subject to compliance with the prescribed procedure. The facts showed that the unit had obtained the necessary approval, the Development Commissioner had recognized the conversion and use of common facilities, and the departmental authorities were informed of the export and procurement position. In these circumstances, denial of exemption and confirmation of duty merely on the allegation of use of EOU premises for DTA clearances was not justified.

Conclusion: The duty demand on this ground was unsustainable and was set aside in favour of the assessee.

Issue (ii): Whether the demand and penalty were barred by limitation.

Analysis: The record did not disclose a basis for invoking the extended period in the facts accepted by the Tribunal, and the demand was treated as time-barred.

Conclusion: The demand was barred by time and the penalty could not survive.

Final Conclusion: The impugned order was set aside and the appeal succeeded with relief flowing from the setting aside of the demand.

Ratio Decidendi: Where a unit is partially converted into a 100% EOU with competent approval and the prescribed procedure for use of common facilities is followed, duty cannot be demanded merely because DTA and EOU operations share the same premises; absent a valid basis for extended limitation, the demand is also time-barred.

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