EOU job-work exemption requires direct export; returning processed goods to DTA breaches a substantive condition and attracts duty and penalty.

An EOU job-working for a DTA unit lost exemption under Notification No. 22/2003-CE because the scheme required the processed goods to be exported directly by the EOU. Sending the goods back to the DTA unit breached a substantive condition of the exemption and the governing Exim Policy, and the Board circular also contemplated that such goods would not be returned to the DTA. That breach sustained liability under the bond and notification framework, so duty, interest, and penalty were recoverable, subject only to the limited reduction of penalty under Section 117 of the Customs Act, 1962.

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Issues: Whether an EOU that undertook job work for a DTA unit, but sent the processed goods back to the DTA unit instead of exporting them directly, was entitled to exemption under the relevant notification and policy regime, and whether duty, interest, and penalty were recoverable.

Analysis: The exemption under Notification No. 22/2003-CE and the governing Exim Policy required that job-work goods be exported directly by the EOU. The Board circular also stipulated that such goods would not be sent back to the DTA. These requirements were substantive conditions, not merely procedural formalities. Since the respondent did not itself export the goods and instead cleared them to the DTA unit, the conditions for exemption were violated. The possibility that the DTA unit could claim rebate or input relief did not cure the respondent's breach or extinguish its liability under the bond and notification conditions.

Conclusion: The respondent was not entitled to the exemption benefit, and the duty, interest, and penalty imposed in the adjudication order were sustainable, except for the limited reduction of penalty under Section 117 of the Customs Act, 1962.

Ratio Decidendi: Where exemption for EOU job work is conditioned on direct export by the EOU, failure to export the goods directly and sending them back to the DTA constitutes a substantive breach that forfeits the exemption and revives liability for duty and penalty.

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