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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether duty demand was sustainable where duty-free raw materials procured by a 100% EOU were cleared back to the original supplier as defective goods under the prescribed procedure.
Analysis: The record showed that the assessee had intimated the departmental officers, removed the rejected materials under AR 3A documents, and the supplier had received the goods back. Para 6.17 of the Foreign Trade Policy permits return of defective goods under the Chapter X procedure, and the corresponding procedure under the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 was treated as pari materia. The earlier decision on identical facts was followed, holding that once duty-free goods are returned to the original supplier and added to non-duty paid stock, duty demand does not arise. However, the evidentiary aspect as to actual receipt and accounting by the supplier required verification from records.
Conclusion: The duty demand was not sustainable in principle, and the issue was decided in favour of the assessee, but the matter was remanded to verify whether the original supplier had received the defective goods and taken them into non-duty paid stock.
Ratio Decidendi: Where duty-free inputs are returned as defective goods to the original supplier under the prescribed procedure and are accounted for in non-duty paid stock, no duty liability survives.
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