De-bonding of a 100% EOU may attract concessional duty and refund where higher domestic clearance rates are inapplicable.

On de-bonding of a 100% export oriented unit, duty is to be computed with reference to the proviso to Section 3(1) of the Central Excise Act, 1944 and the applicable exemption notification, rather than treating the clearance as ordinary domestic tariff area removal. The Tribunal noted that, after the amendment substituting "brought to any other place in India" for "allowed to be sold in India," the concessional treatment extended to de-bonding. It also accepted that semi-finished goods and work-in-progress not yet removed into the domestic market could not be subjected to the higher rate. Excess duty paid in such circumstances was refundable, and rejection of refund was unsustainable.

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Issues: Whether the appellants, on de-bonding of a 100% export oriented unit, had paid excess duty so as to be entitled to refund.

Analysis: The dispute turned on the proper application of the proviso to Section 3(1) of the Central Excise Act, 1944 and the concessional scheme under Notification No. 23/2003-C.E. dated 31.03.2003. The appellants contended that de-bonding was not the same as domestic tariff area clearance and that the concessional rate based on a reduced customs duty element was available. The Tribunal accepted that after the amendment replacing the phrase "allowed to be sold in India" with "brought to any other place in India", the concessional treatment extended to the situation of de-bonding. It also held, following the cited decisions, that duty could not be sustained on semi-finished goods and work-in-progress that had not reached the stage of removal into the domestic market. On that basis, the rejection of refund lacked legal and factual foundation.

Conclusion: The appellants were entitled to refund of the excess duty paid, and the refund rejection was unsustainable.

Ratio Decidendi: On de-bonding of a 100% EOU, duty has to be determined with reference to the proviso to Section 3(1) of the Central Excise Act, 1944 and the applicable exemption notification, and excess duty paid on goods not liable to the higher domestic clearance rate is refundable.

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