Duty on durable reusable packing material from an EOU upheld, but penalty failed for lack of suppression.

Durable, reusable empty plastic drums used as packing material in a 100% EOU were treated as containers suitable for repeated use, so their clearance attracted duty under the relevant exemption notifications; the duty demand was upheld. On penalty, the demand having arisen within the normal period and no suppression or mala fide intention being shown, the ingredients for penalty under section 11AC were not established, so the penalty was set aside.

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Issues: (i) Whether a 100% Export Oriented Unit was liable to pay duty on empty plastic drums used for import of inputs under the exemption notifications when the drums were durable and reusable. (ii) Whether penalty under section 11AC was sustainable.

Issue (i): Whether a 100% Export Oriented Unit was liable to pay duty on empty plastic drums used for import of inputs under the exemption notifications when the drums were durable and reusable.

Analysis: The empty drums were found to be plastic packing material of durable nature and were admittedly used. On that basis, they were treated as containers suitable for repeated use. The Tribunal followed the earlier view that, in such circumstances, clearances of used packing material from an EOU attract duty under the applicable exemption notifications. The plea that the drums were not capable of further use was rejected for want of supporting evidence.

Conclusion: The duty demand on the empty drums was upheld in favour of Revenue.

Issue (ii): Whether penalty under section 11AC was sustainable.

Analysis: The dispute turned on interpretation of the notification provisions and the demand had been raised within the normal period. The Tribunal found no material to establish suppression of facts or mala fide intention, and therefore the penal ingredients required for imposition of penalty were not made out.

Conclusion: The penalty under section 11AC was set aside in favour of the assessee.

Final Conclusion: The demand was sustained, but the penalty was deleted, resulting in only a partial success for the assessee.

Ratio Decidendi: Used durable packing material from a 100% EOU, when suitable for repeated use, is liable to duty under the relevant exemption regime, but penalty cannot be imposed under section 11AC absent suppression or mala fide conduct.

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