Exemption for 100% EOU goods turns on domestic valuation and "allowed to be sold," not actual sale or FOB price.

The Supreme Court held that for goods manufactured by a 100% export-oriented undertaking from indigenous raw materials and covered by the exemption notifications, excise duty had to be computed by reference to the domestic valuation applicable to like goods, not on FOB export price under Section 3(1) proviso (ii). Because the goods were not actually sold but were captively consumed, Rule 8 of the Central Excise Rules, 2000 provided the appropriate valuation method for the domestic benchmark. The Court also held that the notifications, which used the expression "allowed to be sold" in India, did not require actual sale; the exemption operated on that basis and the Tribunal's view was upheld.

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Issues: (i) Whether, for goods manufactured by a 100% export-oriented undertaking from indigenous raw materials and covered by the exemption notifications, the excise duty payable was to be determined on the basis of Rule 8 of the Central Excise Rules, 2000 for captive consumption or on the basis of FOB export price under Section 3(1) proviso (ii) of the Central Excise Act, 1944. (ii) Whether the exemption notifications required actual sale in India, or were attracted when the goods were merely allowed to be sold in India.

Issue (i): Whether, for goods manufactured by a 100% export-oriented undertaking from indigenous raw materials and covered by the exemption notifications, the excise duty payable was to be determined on the basis of Rule 8 of the Central Excise Rules, 2000 for captive consumption or on the basis of FOB export price under Section 3(1) proviso (ii) of the Central Excise Act, 1944.

Analysis: The exemption notifications under Section 5A of the Central Excise Act, 1944 specifically applied to finished goods produced in a 100% EOU from indigenous raw materials and allowed to be sold in India. The notifications limited the levy to the duty payable on like goods manufactured in India by units other than 100% EOUs. In that context, the valuation mechanism for determining the duty referred to in the notifications was not the FOB value contemplated under Section 3(1) proviso (ii), but the valuation applicable to comparable domestic goods. Since the goods were not actually sold but were captively consumed, Rule 8 furnished the appropriate method of valuation for the domestic benchmark.

Conclusion: The duty could not be recomputed on the basis of FOB export price and the Tribunal was right in rejecting that approach.

Issue (ii): Whether the exemption notifications required actual sale in India, or were attracted when the goods were merely allowed to be sold in India.

Analysis: The notification language used the expression "allowed to be sold" and not "sold". That wording was deliberate and showed that actual sale was not a precondition for the exemption. Reading the notification as requiring an actual sale would defeat its object and distort its plain language. The revenue's reliance on the absence of sale to invoke FOB valuation was therefore inconsistent with the notification itself.

Conclusion: Actual sale was not required, and the notification applied on the facts of the case.

Final Conclusion: The valuation adopted by the lower authorities was unsustainable, the Tribunal's view was upheld, and the appeal failed.

Ratio Decidendi: Where an exemption notification for 100% EOUs makes duty payable only to the extent of duty on like domestic goods and uses the expression "allowed to be sold", the notification must be applied according to its plain terms and the relevant domestic valuation method, not FOB export price, and actual sale is not necessary for its operation.

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