Rejects clearance limit under EXIM Policy applies to total production of a 100% EOU, not each product separately.

Under EXIM Policy paragraph 9.9, the 5% limit for clearance of rejects and waste by a 100% EOU was treated as a unit-level cap based on total production, not a separate limit for each product manufactured. The policy was read as containing no conscious product-wise restriction, and the Development Commissioner's clarification confirmed that entitlement to the 5% limit is to be determined in totality. As the record also showed that higher reject percentages could be approved and there was no finding of artificial inflation of rejects, the duty demand on excess clearance was not sustained.

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Issues: Whether the 5% limit for clearance of rejects and waste by a 100% EOU under the EXIM Policy is to be computed product-wise or with reference to the total production of the unit, and whether duty demand on the excess clearance was sustainable.

Analysis: Paragraph 9.9 of the EXIM Policy was read as permitting clearance of rejects up to 5% of the value of production without indicating that the limit must be applied separately to each product manufactured by a 100% EOU. The policy was found to create no conscious product-wise restriction, and the Development Commissioner's later clarification stated that entitlement to the 5% limit is to be determined in totality and not by reference to specific items. The record also showed that higher reject percentages could be permitted with approval, and there was no finding that the rejects were artificially or falsely inflated.

Conclusion: The 5% rejects limit was held to apply to the total production of the unit and not separately to each product. The duty demand was not upheld and the department's appeals failed.

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