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Issues: (i) Whether duty demand and redemption fine were sustainable in respect of furnace oil transferred from one EOU to another EOU without prior departmental permission; (ii) whether the demand raised on alleged short receipt of furnace oil was justified; (iii) whether the demands relating to alleged clandestine removal of yarn and waste required re-determination and consequential reconsideration of penalties.
Issue (i): Whether duty demand and redemption fine were sustainable in respect of furnace oil transferred from one EOU to another EOU without prior departmental permission.
Analysis: The goods were transferred from one unit having EOU status to another unit of the same assessee having EOU status and were used for generation of electricity in production. The notification governing EOU movements permitted transfer without payment of duty, and there was no stipulation that the goods had to be used only in the original unit. The absence of prior permission was treated as a procedural lapse, not as suppression or an act showing intent to evade duty. In the absence of duty evasion, confiscation could not be sustained.
Conclusion: The demand and redemption fine were set aside, in favour of the assessee.
Issue (ii): Whether the demand raised on alleged short receipt of furnace oil was justified.
Analysis: The demand was based on deductions in transport charges and assumptions of short delivery, without corroboration from transporters or proper verification at re-warehousing. No reliable record established abnormal shortage beyond normal transit loss for liquid cargo. The material relied upon did not prove short receipt to the required standard.
Conclusion: The demand was not sustainable, in favour of the assessee.
Issue (iii): Whether the demands relating to alleged clandestine removal of yarn and waste required re-determination and consequential reconsideration of penalties.
Analysis: For the yarn clearances, the applicable duty position for the relevant period required reworking in light of the legal position governing EOU clearances to the domestic tariff area. For the waste clearances, the assessee was denied necessary documents, and the classification and duty liability were not properly established. Since the quantum of duty itself required fresh determination, the question of penalties also had to await the outcome of that exercise.
Conclusion: The matter was remanded for fresh determination on these demands and the related penalties were left to be considered thereafter, partly in favour of the assessee.
Final Conclusion: The assessee succeeded on the principal duty demand concerning inter-EOU transfer and on the short-receipt allegation, while the remaining demands were sent back for fresh adjudication along with consequential reconsideration of penalties.
Ratio Decidendi: Transfer of duty-free goods between EOUs for authorized use does not attract duty or confiscation merely because prior permission was not obtained, when there is no evidence of evasion or suppression and the alleged shortages are not proved by reliable corroboration.
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