DTA clearance of Synthetic Yarn upheld where export entitlement was read in totality, defeating duty demand and penalties.

Permission for domestic tariff area clearance of Synthetic Yarn was interpreted under the Export and Import Policy 2002-2007 and the Handbook of Procedure to mean that DTA entitlement is assessed in totality, not item by item. Because the Development Commissioner had approved clearance of both Cotton Yarn and Synthetic Yarn with awareness of the unit's export history, the condition requiring similar goods or goods of the same class was not read as demanding export of Synthetic Yarn in the same quarter. On that construction, the Synthetic Yarn clearances were consistent with the permission granted, so the duty demand was unsustainable and the penalties could not survive.

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Issues: Whether the assessee was entitled to clear Synthetic Yarn in the domestic tariff area under the Development Commissioner's permission and Notification No. 8/97-CE, and whether the duty demand and penalties based on alleged ineligibility were sustainable.

Analysis: The permission for DTA sale was granted with full awareness that only Cotton Yarn had been exported during the relevant quarter, while approval was nevertheless accorded for DTA clearance of both Cotton Yarn and Synthetic Yarn. The condition restricting DTA sale to similar goods or goods of the same class was read in light of paragraph 6.8(b) of the Export and Import Policy 2002-2007 and paragraphs 6.8(c) and 6.8(d) of the Handbook of Procedure 2002-2007, which contemplate DTA entitlement in totality and not with reference to specific items. On that construction, the condition did not require export of Synthetic Yarn in the same quarter for which permission was sought, but only that such goods had been manufactured and exported from the unit. Since the unit had exported both Cotton Yarn and Synthetic Yarn in the past, the DTA clearances of Synthetic Yarn were held to be consistent with the permission granted.

Conclusion: The duty demand was unsustainable and the penalties could not survive. The assessee's appeals were allowed and the Revenue's appeal was dismissed.

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