Prior permission for domestic clearances is mandatory for 100% export oriented units claiming exemption under the EXIM Policy scheme.

A 100% export oriented unit could claim exemption under Notification No. 2/95-CE for domestic tariff area clearances only if the statutory and EXIM Policy conditions were satisfied, including prior permission from the competent authority. Mere entitlement to operate as an export oriented unit, or simple intimation, did not replace that requirement. The policy condition was treated as substantive rather than procedural because the scheme was aimed at export promotion and foreign exchange earnings. On that basis, clearance into the domestic market without prior permission did not qualify for the exemption, and the benefit was denied.

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Issues: Whether a 100% export oriented unit could avail the benefit of Notification No. 2/95-CE and make domestic tariff area sales without prior permission of the competent authority under the EXIM Policy.

Analysis: The clearance of goods into the domestic market by a 100% export oriented unit is controlled by the terms of the permission granted and the conditions of the EXIM Policy. The exemption under Notification No. 2/95-CE is available only where the statutory and policy conditions governing such clearances are satisfied. Mere intimation or the fact that the unit is otherwise entitled to operate as an export oriented unit does not dispense with the requirement of prior permission from the competent authority for local clearance. The policy requirement was treated as substantive and not a mere formality, particularly because the object of the scheme is export promotion and foreign exchange earnings.

Conclusion: The assessee was not entitled to the exemption without prior permission for domestic tariff area clearance, and the issue was answered against the assessee and in favour of the Revenue.

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