EOU duty-free raw materials: no double customs demand where finished goods cleared to DTA on payment of duty.

Duty-free raw materials imported by an EOU and consumed in goods cleared to the Domestic Tariff Area on payment of applicable duty cannot again attract customs duty, because the duty paid on the finished DTA clearances satisfies the operative exemption condition. Where the unit obtained debonding permission, paid dues, received a no-dues certificate, and made voluntary duty payment on the finished goods, no separate demand on the raw materials was sustainable. In the absence of a proven breach of the exemption conditions or illegal diversion, confiscation and penalty also lacked support and were unsustainable.

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Issues: Whether differential duty was payable on duty-free raw materials and inputs used in goods cleared in the Domestic Tariff Area by an Export Oriented Unit, and whether confiscation and penalty could be sustained.

Analysis: The relevant condition in Notification No. 52/2003-Customs required duty to be paid on goods other than capital goods only where such goods were not used in connection with production or packaging in accordance with the prescribed norms for export out of India or were not cleared for home consumption within the permitted framework. The record showed that the unit had obtained permission for debonding, paid the dues found payable, obtained a no-dues certificate, and also made voluntary payment of duty on finished goods cleared in DTA. The finished goods were not shown to have been diverted illegally, and the duty paid on DTA clearances could not be ignored while alleging non-compliance in respect of the raw materials used in those goods. The settled view applied in similar EOU matters was that where duty is paid on finished goods cleared to DTA, customs duty cannot again be demanded on the raw materials consumed in those goods. On that basis, the invocation of confiscation and penalty provisions also lacked support.

Conclusion: The duty demand on the raw materials was not sustainable, and the confiscation and penalty were also unsustainable.

Ratio Decidendi: Where duty-free raw materials imported by an EOU are consumed in goods cleared to the Domestic Tariff Area on payment of the applicable duty, customs duty cannot be again demanded on those raw materials, and consequential confiscation or penalty cannot be sustained absent a proven violation of the exemption condition.

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