Customs duty for 100% EOU imports is payable only in proportion to unachieved NFE, with penalty unsustainable on recomputation.

For a 100% Export Oriented Unit that achieved positive NFE only partially, customs duty on imported goods is recoverable only in proportion to the unachieved NFE and not on the entire imports, because duty foregone becomes payable only to that extent under the applicable circular. The Tribunal was also correct in remanding the matter for proper quantification of duty on goods other than capital goods, since the original demand had treated all duty-free goods alike. Once the duty liability required recomputation on this basis, the penalty could not be sustained.

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Issues: (i) Whether customs duty was payable on the entire quantity of goods imported by a 100% Export Oriented Unit, or only to the extent corresponding to the non-achieved portion of positive NFE; (ii) whether the Tribunal was justified in remanding the matter for quantification of duty on goods other than capital goods and in setting aside the penalty.

Issue (i): Whether customs duty was payable on the entire quantity of goods imported by a 100% Export Oriented Unit, or only to the extent corresponding to the non-achieved portion of positive NFE.

Analysis: The unit had achieved positive NFE to the extent of 64%. On the reasoning adopted, duty was not leviable on the portion of imports corresponding to exports achieved. The duty foregone at the time of import becomes payable only in proportion to the shortfall in NFE, as reflected in Circular No. 12/2008 dated 24-7-2008. The assessee could not therefore be subjected to duty on 100% of the imported goods.

Conclusion: Duty was payable only proportionately to the extent of the non-achieved portion of NFE, and not on the entire imports.

Issue (ii): Whether the Tribunal was justified in remanding the matter for quantification of duty on goods other than capital goods and in setting aside the penalty.

Analysis: The adjudicating order had treated capital goods and other duty-free goods alike, although only the goods not utilized in the manufacture of export articles required quantification of duty. The Tribunal therefore acted correctly in remanding the matter for proper quantification. Once the duty demand was re-examined on this basis, the penalty could not be sustained.

Conclusion: The remand for quantification and the setting aside of penalty were justified.

Final Conclusion: The appeal of the revenue failed, and the Tribunal's view protecting the assessee from full duty demand was sustained.

Ratio Decidendi: In the case of a 100% Export Oriented Unit that has achieved positive NFE only partially, customs duty is recoverable only in proportion to the unachieved NFE, and penalty cannot stand where the duty demand itself requires recomputation.

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