Customs duty demand on EOU manufacturing waste fails where excisable clearance was duty-paid and no diversion was shown.

Customs duty demand on imported raw cotton used by a 100% Export Oriented Unit for waste generated during manufacture and cleared to the Domestic Tariff Area was held unsustainable. The Tribunal noted that the same issue had already been decided in a connected appeal, that the waste cleared to the Domestic Tariff Area was excisable and duty had been paid on such clearance, and that the governing exemption notification did not authorise the department's demand on the facts presented. In the absence of any finding of deliberate misuse, pilferage, or diversion, the demand on the imported inputs could not be maintained and the impugned order was set aside.

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Issues: Whether customs duty demand on imported raw cotton could be sustained against a 100% Export Oriented Unit in respect of waste generated during manufacture and cleared to the Domestic Tariff Area.

Analysis: The demand was founded on the view that the quantity of waste exceeded the permissible limit. The Tribunal noted that the same impugned order and the same issue had already been examined in a connected appeal and decided in favour of the assessee. It also accepted that the waste cleared to the Domestic Tariff Area was excisable, that duty had been paid on such clearance, and that the notification governing the imports did not authorise a customs duty demand in the manner adopted by the department. In the absence of any finding of deliberate misuse, pilferage, or diversion, the demand could not be upheld.

Conclusion: The customs duty demand was unsustainable and the assessee succeeded.

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

Ratio Decidendi: Where waste generated in the course of manufacture by a 100% Export Oriented Unit is lawfully cleared as excisable goods and the governing exemption notification does not create liability in the circumstances invoked by the department, customs duty on the imported inputs cannot be demanded merely on the basis of alleged excess wastage.

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