Procedural lapse in 100% EOU removals was insufficient to sustain duty demand without proof of diversion or local sale.

Strict non-compliance with the procedure for removing duty-free imported goods from a 100% EOU to a sister concern did not, on the facts shown, justify sustaining duty demand and allied penalties where the records supported supervised movement, receipt back of processed goods and exports, and the alleged lapse was treated as procedural. The absence of independent evidence of diversion or local sale was decisive, and the Revenue's case failed because verification based on available records did not establish misuse of the imported goods in the domestic market.

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Issues: Whether the demand of duty and allied penalties could be sustained solely for non-compliance with the procedure prescribed for removal of duty-free imported goods from a 100% EOU to a sister concern, in the absence of evidence of diversion or local sale.

Analysis: The records showed that the unit operated under the supervision of Central Excise officers and that removals, receipts back of processed goods, and exports were supported by documents scrutinised in adjudication. Though the prescribed procedure under the relevant circular and notifications was not followed strictly, the surrounding facts, including export performance and accounting records, supported the finding that the lapse was procedural. The Revenue did not produce independent evidence showing sale or diversion of imported goods in the local market, and the verification conducted on the basis of available records was accepted in the factual setting of the case.

Conclusion: The duty demand could not be sustained on the facts proved, and the Revenue appeal failed.

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