EOU to SEZ transfer of imported capital goods with approval was treated as compliant despite negative NFE shortfall.

Imported capital goods brought into an EOU under bond may be transferred to a SEZ unit where the transfer is approved by the Development Commissioner and the applicable FTP and HBP requirements are otherwise met. On the stated facts, the absence of positive NFE by itself did not justify sustaining duty demand, interest, or penalty against the unit. The text notes that, because there was no non-compliance with the governing scheme provisions, the adjudged demand was not sustainable.

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Issues: Whether duty demand, interest, and penalty could be sustained against an EOU unit that transferred imported capital goods to a SEZ unit with approval of the Development Commissioner despite not achieving positive NFE.

Analysis: The imported capital goods were brought in under bond under the relevant notification and the governing foreign trade policy framework permitted removal of capital goods from the EOU, transfer to another SEZ or EOU unit, and exit from the EOU scheme in the manner prescribed. The transfer to the SEZ unit was approved by the Development Commissioner and, on the record, there was no non-compliance with the applicable FTP and HBP provisions. In these circumstances, the shortfall in positive NFE did not justify fastening the adjudged duty demand on the appellant.

Conclusion: The duty demand, interest, and penalty were not sustainable and the appeal was allowed in favour of the appellant.

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