Genuine manufacture and authorised DTA clearance defeat customs and excise demand based on alleged segregated material sales.

Where the record showed that imported dross was genuinely used by a 100% EOU to manufacture brass granules, ingots, wire and rods, and that the resulting goods were cleared into the DTA with authorisation and on payment of duty, a demand treating the clearances as unauthorised sale of segregated material could not stand. The Tribunal relied on the annexure to the show cause notice and the permission for DTA sale to reject the allegation of short-paid customs and central excise duty. The demand and penalty were held unsustainable, and the impugned orders were set aside in favour of the assessee.

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Issues: Whether the demand of customs and central excise duty, together with penalty, on the premise that the goods were cleared into the Domestic Tariff Area, was sustainable when the record showed manufacture and authorised DTA clearance of the processed goods.

Analysis: The Tribunal noted that the appellant was a 100% EOU engaged in manufacture of brass ingots, wire, rods and related items from imported dross. On the evidence on record, including the annexure to the show cause notice and the permission granted for DTA sale, the Tribunal accepted that the imported material had been utilised in manufacture of brass granules and that the clearances were made as manufactured goods on payment of duty. In these circumstances, the premise that the appellant had merely sold segregated material into DTA and had therefore short-paid duty was not accepted.

Conclusion: The demand and penalty were unsustainable and were set aside in favour of the assessee.

Final Conclusion: The appeals succeeded and the impugned orders were annulled.

Ratio Decidendi: Where the evidence shows that imported inputs were genuinely used in manufacture and the resulting goods were cleared with the requisite duty and authorisation, a demand premised on unauthorised DTA sale of segregated material cannot be sustained.

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