Duty-free EOU procurement under CT-3 cannot be re-agitated after merits exoneration; belated demand also fails on limitation.

Duty-free procurement of capital goods by a 100% Export Oriented Unit under CT-3 could not be treated as an unsustained contravention where the Development Commissioner had already dropped proceedings on merits. On those facts, the adverse demand and penalty were found unsustainable because the same allegation could not be revived in revenue proceedings after competent exoneration. The later demand was also held time barred. The revenue challenge therefore failed and the order dropping the demand was upheld.

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Issues: Whether the demand and penalty in respect of capital goods procured by a 100% Export Oriented Unit without the Development Commissioner's express permission could be sustained, and whether the demand was barred by limitation.

Analysis: The capital goods were procured duty-free under CT-3, installed in the factory premises, and used for manufacture of approved final products. The Development Commissioner had already dropped proceedings on merits, including the allegation of procurement without permission, and the finding that duty had been paid under protest could not revive a charge that had not been upheld. In view of the exoneration by the authority in charge of the EOU and the admitted procurement under departmental CT-3, the adverse findings in the adjudication order were not sustainable. The demand issued later was also found to be time barred.

Conclusion: The demand and penalty could not be sustained; the issue was answered in favour of the assessee.

Final Conclusion: The revenue's challenge failed and the order dropping the demand was upheld.

Ratio Decidendi: Where the competent authority has already dropped proceedings on merits regarding duty-free procurement by an EOU, the same allegation cannot be sustained in revenue proceedings, and a belated demand on the same facts is liable to fail as time barred.

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