Clandestine DTA clearances by a 100% EOU attract excise duty, while the Customs penalty could not be sustained.

Goods cleared by a 100% export-oriented unit into the domestic tariff area without permission remained liable under the main charging provision of the Central Excise Act, because the proviso for permitted sales in India did not apply to clandestine removals. The duty demand was therefore upheld under Section 3(1). The penalty under Section 112 of the Customs Act was unsustainable once the duty liability was restored on the excise footing, so it was set aside. The result was mixed: excise duty consequences were sustained, but the Customs Act penalty on the company failed.

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Issues: (i) Whether goods cleared by a 100% Export Oriented Unit into the domestic tariff area without permission attracted duty under the main charging provision of the Central Excise Act or only under the proviso and the Customs Act; (ii) Whether the penalty imposed under Section 112 of the Customs Act was sustainable.

Issue (i): Whether goods cleared by a 100% Export Oriented Unit into the domestic tariff area without permission attracted duty under the main charging provision of the Central Excise Act or only under the proviso and the Customs Act.

Analysis: The proviso to Section 3(1) applies where goods manufactured by a hundred per cent export-oriented undertaking are allowed to be sold in India. Where the goods are removed clandestinely into the domestic tariff area without permission, that proviso is inapplicable. The charging section continues to apply, and the nature of the levy remains excise duty. The Board's circular and the cited authority were relied upon to support the view that the absence of permission does not eliminate central excise liability.

Conclusion: The duty demand was held payable under Section 3(1) of the Central Excise Act and the Revenue succeeded on this issue.

Issue (ii): Whether the penalty imposed under Section 112 of the Customs Act was sustainable.

Analysis: The penalty under Section 112 had been sustained by the appellate authority even though the dispute concerned removal of goods from a 100% Export Oriented Unit into the domestic tariff area. Once the duty liability was restored under the Central Excise Act, the basis for sustaining the Customs Act penalty on the company did not survive on the footing accepted by the appellate authority.

Conclusion: The penalty under Section 112 of the Customs Act was set aside and the company succeeded on this issue.

Final Conclusion: The duty demand and related excise consequences were restored, while the Customs Act penalty on the company was annulled, leaving the parties with a mixed result.

Ratio Decidendi: Goods cleared by a 100% Export Oriented Unit into the domestic tariff area without permission remain chargeable under the main excise charging provision, and the proviso governing permitted sales in India does not displace that liability.

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