EOU concessional clearance requires proof of NFEE compliance and permission; unverified duty computation cannot stand.

Concessional DTA clearances by an EOU under Notification No. 2/95-CE are sustainable only when the prescribed conditions, including NFEE compliance and competent permission for clearances, are actually verified and met. An assessment based on the unverified premise that the supplier was not a 100% EOU could not be maintained, so the duty computation founded on that assumption was rejected. The notification benefit was also denied for lack of proof of compliance with the required conditions. The penalty on the proprietor was set aside, while the higher duty demand and redemption fine were restored.

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Issues: (i) whether the duty liability and import-versus-indigenous ratio were correctly computed on the basis that a supplier was not a 100% EOU; (ii) whether the benefit of Notification No. 2/95-CE dated 04.01.1995 could be extended without verifying fulfillment of NFEE conditions and permission for DTA clearances; (iii) whether the penalty imposed on the proprietor was justified.

Issue (i): whether the duty liability and import-versus-indigenous ratio were correctly computed on the basis that a supplier was not a 100% EOU;

Analysis: The calculation adopted in adjudication proceeded on the premise that the supplier was not a 100% EOU. The record before the Tribunal showed that this premise was not supported by proper verification, and the contrary position was borne out by the show-cause notice and the connected proceedings. Since the foundational factual assumption was erroneous, the resulting ratio and consequential duty computation could not be sustained.

Conclusion: The duty computation based on the incorrect factual premise was rejected, and the Revenue's challenge on this aspect was accepted.

Issue (ii): whether the benefit of Notification No. 2/95-CE dated 04.01.1995 could be extended without verifying fulfillment of NFEE conditions and permission for DTA clearances;

Analysis: The notification permits concessional clearance for home consumption only when the prescribed conditions are satisfied, including satisfaction of the authority regarding the nature of the goods, the permissible extent of DTA clearances, and fulfillment of the minimum NFEP/NFEE requirement. The adjudicating authority had granted the benefit without establishing that these conditions were met or that the competent authority had permitted the clearances. In the absence of proof of compliance, the concession could not be allowed.

Conclusion: The extension of the notification benefit was held to be unjustified, and the Revenue succeeded on this issue.

Issue (iii): whether the penalty imposed on the proprietor was justified;

Analysis: The Tribunal found that the reasoning adopted for dropping penalties against other noticees was equally applicable, and the circumstances did not justify sustaining the penalty on the proprietor. The order also set aside the penalty imposed on him.

Conclusion: The penalty on the proprietor was set aside.

Final Conclusion: The appeal resulted in restoration of the higher duty demand and redemption fine, with penalty relief granted only to the extent ordered by the Tribunal.

Ratio Decidendi: A concessional exemption for DTA clearances from an EOU can be sustained only upon proof of compliance with the prescribed statutory and policy conditions, and an assessment founded on an unverified factual assumption cannot be maintained.

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