Granite EOU exemption depends on notification compliance; clandestine DTA clearances remain dutiable with cum-duty re-quantification.

Exemption for quarry-linked capital goods, machinery, spares and consumables used by a 100% export oriented granite unit depends on compliance with the notification conditions and the permitted scope of exports under the EOU scheme. On the facts stated, denial of exemption for the quarry-based inputs was not sustained because the export obligation and net foreign exchange performance were not found adverse. Clandestine clearances to the Domestic Tariff Area remained liable to duty, including on sawn slabs and transferred consumables, but re-quantification was required after giving admissible exemption benefits and cum-duty treatment on realised sale proceeds.

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Issues: (i) whether the duty-free exemption availed on imported and indigenous capital goods, machinery, spares, components and consumables used in the granite quarries could be denied for alleged violation of the notification conditions, and (ii) whether the assessee was liable to duty on clandestine clearances to the Domestic Tariff Area and, if so, whether the duty required re-quantification with the benefit of the applicable exemptions and cum-duty treatment.

Issue (i): Whether the duty-free exemption availed on imported and indigenous capital goods, machinery, spares, components and consumables used in the granite quarries could be denied for alleged violation of the notification conditions.

Analysis: The exemption notifications permitted quarrying goods for use in a granite quarry by a 100% export oriented unit, subject to conditions that the goods be used for quarrying granite meant for further processing or export, and that quarried goods not be exported as such or cleared to the Domestic Tariff Area. The decisive consideration was that the dimensional granite blocks exported by the unit were not covered by the line of permission for the relevant period, and the Development Commissioner had clarified that direct export of dimensional granite blocks from the quarries was not earlier permitted under the export oriented unit scheme. The Tribunal also noted that the export obligation and net foreign exchange performance in respect of the bonded capital goods and consumables were not found against the assessee in the impugned order, and that entitlement under the notifications would depend upon fulfillment of the prescribed export conditions within the permitted period.

Conclusion: The denial of exemption on the quarry-linked capital goods and consumables could not be sustained on the facts as found, and the demands on this account were set aside.

Issue (ii): Whether the assessee was liable to duty on clandestine clearances to the Domestic Tariff Area and, if so, whether the duty required re-quantification with the benefit of the applicable exemptions and cum-duty treatment.

Analysis: The finished goods cleared without accounting and without payment of duty were held to be clandestine removals of excisable goods, and the finding that the clearances were not rejects was upheld. Duty liability therefore survived on the clandestine clearances, including the sawn slabs and transferred consumables, and the penalties attached to such clearances were not disturbed in principle. For Domestic Tariff Area clearances, however, the unit was held entitled to the benefit of the relevant exemption notifications to the extent admissible, and the Tribunal directed consideration of the assessee's entitlement under the applicable DTA notification framework. Cum-duty benefit was also required to be applied in respect of realised sale proceeds for clandestine clearances, necessitating fresh computation after hearing the parties.

Conclusion: Duty liability on clandestine Domestic Tariff Area clearances was upheld in principle, but the matter was remanded for re-quantification after applying the eligible exemptions and cum-duty benefit.

Final Conclusion: The appeals succeeded only to the extent of setting aside the quarry-based exemption demands and requiring fresh quantification for the remaining duty and penalty liability.

Ratio Decidendi: Where bonded goods and quarry-related inputs are used under a specific exemption scheme, the denial of exemption depends on breach of the governing notification conditions and the actual permissibility of the exported product under the export oriented unit scheme; clandestine removals, by contrast, remain liable to duty, but assessment must reflect the statutory exemptions and cum-duty principle wherever legally available.

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