Exemption conditions for EOU exports cannot be denied where testing, repacking and relabelling were done under competent permission.

Exports from a 100% EOU made with specific permission of the Development Commissioner could not be treated as a breach of exemption conditions merely because the goods were duty-free imported or domestically procured components that underwent inspection, functional testing, repacking and relabelling. The policy concept of manufacture was applied broadly, and the Board circulars required consultation and reference before any duty demand on that issue. The department also failed to establish that the goods were exported as such without manufacture; on the facts, duty, confiscation and penalties were unsustainable and the appeals were allowed with consequential relief.

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Issues: (i) Whether export of duty-free imported or domestically procured components and parts, after inspection, functional testing, repacking and relabelling, violated the conditions of the customs and central excise exemption notifications; (ii) whether the goods were exported as such without manufacture and were therefore liable to duty, confiscation and penalty.

Issue (i): Whether export of duty-free imported or domestically procured components and parts, after inspection, functional testing, repacking and relabelling, violated the conditions of the customs and central excise exemption notifications.

Analysis: The unit had obtained specific permission from the Development Commissioner for export of bought-out parts, and that permission was communicated to the customs authorities. The expression "manufacture" in the foreign trade policy was applied in a broad manner, and testing, repacking and relabelling were treated as sufficient to bring the activity within that definition for the purpose of the export scheme. In a situation involving interpretation of the exemption notifications and the policy provisions, the Board circulars required consultation and reference before proceeding to demand duty. The record also showed that the exports were made with official knowledge and without clandestine removal.

Conclusion: The notification conditions were not held to have been violated on these facts.

Issue (ii): Whether the goods were exported as such without manufacture and were therefore liable to duty, confiscation and penalty.

Analysis: The department's case that the goods were exported as such was not accepted. The factual materials showed testing, opening of packages, repacking and relabelling, together with authorization from the Development Commissioner. The exports also generated net foreign exchange and no revenue loss was shown. In these circumstances, duty demand, confiscation and penal consequences were found unjustified.

Conclusion: The finding that the goods were exported as such was rejected, and the demand, confiscation and penalties were unsustainable.

Final Conclusion: The impugned order was set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Where exports from a 100% EOU are made with specific permission of the competent development authority, and the activity includes testing, repacking and relabelling under the foreign trade policy, the exemption conditions cannot be mechanically denied by applying a narrow excise-law notion of manufacture; in such cases, duty demand and consequential penalties are not sustainable without proper consultation and clarification on the policy issue.

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