EOU exemption for captive power use remains available where surplus electricity is sold without violating notification conditions.

Duty-free exemption under customs and central excise notifications for goods used in a 100% EOU was treated as available where the goods and consumables supported captive power generation for export production. The absence of an express exclusivity condition was significant, and the sale of surplus electricity to the domestic tariff area did not, by itself, establish breach of the notification conditions or misuse of inputs for a non-eligible purpose. On that basis, the duty demands, interest, confiscation and penalties were held unsustainable, and the exemption benefit was preserved.

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Issues: Whether duty-free exemption under the relevant customs and central excise notifications was available to the imported DG sets, spare parts and fuel consumed in a captive power plant, notwithstanding the sale of surplus electricity in the domestic tariff area, and whether the duty demands, interest, confiscation and penalties could be sustained.

Analysis: The exemption notifications were read as allowing goods imported or procured for use in a 100% EOU for production of export goods, and the Court treated the absence of words such as "only" or "exclusively" as significant. The evidence showed that the power plant and consumables were used for the manufacture of the export product, and that electricity, being incapable of storage, could generate surplus which was wheeled out when plant conditions and production constraints reduced captive requirement. The Court relied on the earlier decision upholding similar exemption for surplus power and held that the sale of surplus electricity did not by itself establish violation of the notification conditions or prove that excess consumables were misused for a non-eligible purpose.

Conclusion: The exemption remained available and the duty demands, interest, confiscation and penalties were not sustainable.

Final Conclusion: The impugned adjudication was set aside in full and the appeals succeeded, with the benefit of exemption preserved for the appellant unit.

Ratio Decidendi: Where exemption notifications governing an EOU do not impose an express exclusivity restriction, use of imported or duty-free procured goods for captive production is not denied merely because surplus electricity generated in the course of such production is sold in the domestic tariff area.

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