Export-oriented unit duty liability cannot be settled by scrip debit, while confiscation-linked penalties fail without confiscability finding.

Clearance by a hundred per cent export-oriented unit into the domestic tariff area attracted duty under the proviso to section 3 of the Central Excise Act, 1944, and mere debit of a Served From India Scheme scrip did not discharge that liability because the exemption notification did not extend to such clearances. The duty demand and interest were sustained. Penalties under section 112 of the Customs Act, 1962 and rule 25 of the Central Excise Rules, 2004 could not survive without a foundational finding that the goods were liable to confiscation, so the penalties were set aside. The assessee received partial relief.

---

---

Issues: (i) Whether debit of a Served From India Scheme scrip constituted due discharge of the central excise duty payable on clearance of goods by a hundred per cent export-oriented unit into the domestic tariff area; (ii) Whether the penalties imposed under the customs and central excise provisions were sustainable in the absence of a finding rendering the goods liable to confiscation.

Issue (i): Whether debit of a Served From India Scheme scrip constituted due discharge of the central excise duty payable on clearance of goods by a hundred per cent export-oriented unit into the domestic tariff area.

Analysis: Clearance of goods by a hundred per cent export-oriented unit into the domestic tariff area attracted duty under the proviso to section 3 of the Central Excise Act, 1944. The exemption notification relied upon did not extend its benefit to goods manufactured by a hundred per cent export-oriented undertaking and brought to any other place in India. The notification governing the scheme for duty-free procurement by eligible recipients did not legalise clearance of the appellant's goods against mere debit of scrip value when the statutory duty had otherwise remained unpaid.

Conclusion: The duty demands were correctly upheld against the assessee.

Issue (ii): Whether the penalties imposed under the customs and central excise provisions were sustainable in the absence of a finding rendering the goods liable to confiscation.

Analysis: The record contained no finding by the original authority holding the goods liable to confiscation. In the absence of such a foundational finding, the penalty imposed under section 112 of the Customs Act, 1962 could not stand. For the same reason, the penalty under rule 25 of the Central Excise Rules, 2004 was also unsustainable.

Conclusion: The penalties were liable to be set aside in favour of the assessee.

Final Conclusion: The duty and interest were sustained, but the penalties were annulled, resulting in partial relief to the assessee.

Ratio Decidendi: For an export-oriented unit clearing goods into the domestic tariff area, duty liability under the excise law cannot be discharged by debit of an export incentive scrip unless the governing exemption notification expressly permits it, and penalties for confiscation-linked contraventions cannot survive without a finding of confiscability.

---