Credit from 100% EOU and time-bar on end-use exemption demand both favoured the assessee.

Credit on inputs received from a 100% EOU is to be determined by comparing the duty actually paid by the EOU with the additional customs duty leviable on like imported goods; the recipient is entitled only to the lesser amount, and the credit cannot be restricted to one component of the duty merely because an exemption notification was used. Electrical appliances cleared under an end-use based exemption were held not exempt per se, but the demand was unsustainable as time-barred where the department already knew of the clearances through periodic returns. The penalty consequently did not survive and consequential relief followed.

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Issues: (i) Whether credit on inputs procured from a 100% EOU was restricted to the duty actually paid under the exemption notification, or was available up to the lesser of the duty paid and the additional customs duty leviable on like imported goods; and (ii) whether the demand arising from clearances of electrical appliances for telephone lines under end-use based exemption was sustainable when no separate accounts were maintained.

Issue (i): Whether credit on inputs procured from a 100% EOU was restricted to the duty actually paid under the exemption notification, or was available up to the lesser of the duty paid and the additional customs duty leviable on like imported goods.

Analysis: The applicable principle was that credit in respect of goods received from a 100% EOU has to be determined by comparing the duty actually paid by the EOU on the inputs with the additional customs duty leviable on like goods if imported, and the recipient is entitled to the lesser amount. The total duty paid by the EOU is to be treated as a single figure for this comparison, and the credit cannot be confined only to a particular component of that duty merely because the EOU had availed an exemption notification.

Conclusion: The credit was rightly available to the appellant to the extent of the lesser amount, and this issue was decided in favour of the appellant.

Issue (ii): Whether the demand arising from clearances of electrical appliances for telephone lines under end-use based exemption was sustainable when no separate accounts were maintained.

Analysis: The goods were not exempt per se. The exemption operated only when clearances were made to a specified customer for a specified end use, and the department was already aware of those clearances through periodic returns. On that basis, the demand was held unsustainable on limitation, without entering into the merits of the classification or exemption dispute.

Conclusion: The demand was time-barred and this issue was decided in favour of the appellant.

Final Conclusion: The appeal succeeded in full, the penalty did not survive, and consequential relief followed according to law.

Ratio Decidendi: In credit disputes involving clearances from a 100% EOU, the admissible credit is limited to the lesser of the duty actually paid and the additional customs duty on like imported goods; and where the department has knowledge of end-use based exempt clearances through returns, a demand raised beyond limitation is unsustainable.

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